(Yicai) March 4 -- China's highest legislative body is expected to set the same gross domestic product target of 5 percent this year as last year, according to the chief China economist at UBS Investment Bank.

The National People's Congress, which will start its annual session tomorrow, is likely to announce the same number this year whereas UBS maintains its baseline forecast of 4.6 percent given the expected modest macroeconomic policy support, the ongoing property downturn, and the fading post-Covid-19 recovery base effect, Wang Tao from the Swiss investment bank wrote in a recent note.

The NPC could anticipate a fiscal deficit of around 3 percent of the GDP for this year, Wang said, adding that the government is forecast to issue another CNY1 trillion (USD138.9 billion) of central government bonds or another form of long-term financing to support public investment.

UBS predicts the NPC to allow local governments to issue new special refinancing bonds to swap qualified debts of local government financing vehicles and to pay off arrears. The national legislature is also forecast to encourage banks to help local governments restructure their off-balance sheet debts.

Although there has been some progress, the country lacks a long-term solution to these heavily indebted financing platforms, hindering local governments' ability to leverage infrastructure investment and spur economic growth in the short term.

UBS anticipates the NPC to maintain a supportive stance in its monetary and credit policy, refraining from extensive monetary easing. The central bank may further lower policy rates by 10 to 20 basis points this year and cut the reserve requirement ratio by 25 basis points. Credit growth is projected to remain steady at around 9.5 percent.

The international financial behemoth expects China's infrastructure investment to slow only slightly despite more explicit fiscal support. However, exports should increase due to the upswing of the global technology cycle.

Editor: Emmi Laine