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Tuesday 25 November 2008
World Bank Cuts China Growth Forecast for 2009
The World Bank cut its 2009 growth forecast for China on Tuesday, projecting the slowest pace of expansion since 1990 as the impact of global financial turmoil intensifies and the real estate sector remains in the doldrums.
BEIJING: The World Bank cut its 2009 growth forecast for China on Tuesday, projecting the slowest pace of expansion since 1990 as the impact of global financial turmoil intensifies and the real estate sector remains in the doldrums.
In its latest update on the Chinese economy, the bank lowered its outlook for 2009 gross domestic product growth to 7.5 percent from 9.2 percent, a forecast it had made in June before the international financial crisis took a serious turn for the worse.
It already expected growth this year to moderate to 9.4 percent, the first single-digit pace of expansion since 2002, from a breakneck 11.9 percent in 2007.
Louis Kuijs, the senior economist in the bank’s Beijing office, said he was significantly less optimistic about private-sector investment than he was half a year ago as the troubles of the export and property sectors spread through the economy.
“China is going to face a difficult coming six months,” he told a news conference to present the report. Heavy industries, such as steel and cement, had already slowed remarkably, he said.
One silver lining was that, with growth weakening, inflation had disappeared from the radar, Kuijs said.
The bank expected consumer prices to rise just 2.0 percent next year after a 6.5 percent increase in 2008.
“Putting these two things together, there is, unambiguously, significant room and need for a more expansionary macroeconomic stance,” Kuijs said.
Interest rates probably had room to fall further over the next year, on top of three cuts since mid-September, but Kuijs said the recent abolition of credit quotas was at least as important, if not more so, than a drop in borrowing costs.
If the bank’s forecast proves to be correct, it would be China’s weakest GDP growth since 1990, when the economy expanded just 3.8 percent; growth in 1999 was 7.6 percent.
Kuijs said the risks to the forecast were more or less evenly balanced, with the prospect of weak private-sector demand offset by the likelihood of a big boost from the 4 trillion yuan, or $586 billion, stimulus package that Beijing announced Nov. 9.
The bank expected government-influenced spending to account for more than half of next year’s growth.
Net exports, by contrast, are likely to lop 1 percentage point off GDP growth as overall imports substantially outpace exports, which the bank expected to grow just 3.5 percent in real terms in 2009, down from 11.0 percent growth this year.
It would be the first time in many years that net external trade has subtracted from growth, the report said.
With net exports deteriorating, the bank expected China’s current account surplus to dip further as a percentage of GDP to 8.9 percent in 2009 from 9.3 percent this year and 11.3 percent in 2007.
But it said it believed the surplus will rise in dollar terms, to $427 billion in 2009 from $386 billion this year. As a result, China’s foreign exchange reserves will grow by more than $500 billion in 2009 for the second year in a row, reaching $2.55 trillion.
David Dollar, the bank’s country director for China, played down the repercussions for jobs if growth slows to 7.5 percent.
The conventional wisdom that China needs to grow by 8 percent a year to absorb newcomers to the workforce had no scientific basis, he said.
Media reports have spoken of heavy layoffs in Guangdong province, where some 27 million migrant workers work, as factories close in response to slumping export orders.
But Dollar said the bank’s GDP forecast was consistent with expectations that China would in fact continue to create enough jobs; the labour market would remain “pretty tight,” he said.
Dollar said the World Bank had opened talks with China about ways in which Beijing could contribute additional financing for the Washington lender that would help developing countries.
“But that’s at an early stage and there are really no more details to report at this time,” he told reporters.
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World Bank Cuts China Growth Forecast for 2009
Reuters
25 November 2008
BEIJING: The World Bank cut its 2009 growth forecast for China on Tuesday, projecting the slowest pace of expansion since 1990 as the impact of global financial turmoil intensifies and the real estate sector remains in the doldrums.
In its latest update on the Chinese economy, the bank lowered its outlook for 2009 gross domestic product growth to 7.5 percent from 9.2 percent, a forecast it had made in June before the international financial crisis took a serious turn for the worse.
It already expected growth this year to moderate to 9.4 percent, the first single-digit pace of expansion since 2002, from a breakneck 11.9 percent in 2007.
Louis Kuijs, the senior economist in the bank’s Beijing office, said he was significantly less optimistic about private-sector investment than he was half a year ago as the troubles of the export and property sectors spread through the economy.
“China is going to face a difficult coming six months,” he told a news conference to present the report. Heavy industries, such as steel and cement, had already slowed remarkably, he said.
One silver lining was that, with growth weakening, inflation had disappeared from the radar, Kuijs said.
The bank expected consumer prices to rise just 2.0 percent next year after a 6.5 percent increase in 2008.
“Putting these two things together, there is, unambiguously, significant room and need for a more expansionary macroeconomic stance,” Kuijs said.
Interest rates probably had room to fall further over the next year, on top of three cuts since mid-September, but Kuijs said the recent abolition of credit quotas was at least as important, if not more so, than a drop in borrowing costs.
If the bank’s forecast proves to be correct, it would be China’s weakest GDP growth since 1990, when the economy expanded just 3.8 percent; growth in 1999 was 7.6 percent.
Kuijs said the risks to the forecast were more or less evenly balanced, with the prospect of weak private-sector demand offset by the likelihood of a big boost from the 4 trillion yuan, or $586 billion, stimulus package that Beijing announced Nov. 9.
The bank expected government-influenced spending to account for more than half of next year’s growth.
Net exports, by contrast, are likely to lop 1 percentage point off GDP growth as overall imports substantially outpace exports, which the bank expected to grow just 3.5 percent in real terms in 2009, down from 11.0 percent growth this year.
It would be the first time in many years that net external trade has subtracted from growth, the report said.
With net exports deteriorating, the bank expected China’s current account surplus to dip further as a percentage of GDP to 8.9 percent in 2009 from 9.3 percent this year and 11.3 percent in 2007.
But it said it believed the surplus will rise in dollar terms, to $427 billion in 2009 from $386 billion this year. As a result, China’s foreign exchange reserves will grow by more than $500 billion in 2009 for the second year in a row, reaching $2.55 trillion.
David Dollar, the bank’s country director for China, played down the repercussions for jobs if growth slows to 7.5 percent.
The conventional wisdom that China needs to grow by 8 percent a year to absorb newcomers to the workforce had no scientific basis, he said.
Media reports have spoken of heavy layoffs in Guangdong province, where some 27 million migrant workers work, as factories close in response to slumping export orders.
But Dollar said the bank’s GDP forecast was consistent with expectations that China would in fact continue to create enough jobs; the labour market would remain “pretty tight,” he said.
Dollar said the World Bank had opened talks with China about ways in which Beijing could contribute additional financing for the Washington lender that would help developing countries.
“But that’s at an early stage and there are really no more details to report at this time,” he told reporters.
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