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WB reduces '09 growth rate to 7.5%

By Xin Zhiming (China Daily)
Updated: 2008-11-26 07:12

China's economic growth may slow down to 7.5 percent next year, the lowest since 1990, the World Bank said Tuesday.

The bank cut its forecast for next year from 9.2 percent but said the country has "adequate tools" to keep the economy moving at a healthy pace.

Though the bank expects a 9.4 percent growth this year, it said the global financial crisis would take a greater toll on the world's fourth-largest economy in 2009. The growth slowed to 9 percent in the third quarter of this year against 11.4 percent for the whole of last year.

The country's expected expansionary fiscal policy next year to boost economic growth is likely to create a deficit of 2.6 percent of the GDP, which is "sizable but manageable", the World Bank said. This year, the deficit could be 0.4 percent.

An Organization of Economic Cooperation and Development (OECD) report issued Tuesday, however, said next year's growth rate could be 8 percent, while the International Monetary Fund put it at 8.5 percent.

"China's growth is likely to moderate further, and the annualized quarter on quarter growth rate is projected to fall below 8 percent in the near term," said the OECD report. But it may rebound in 2010 to reach 9.2 percent that year, the report said.

The country's exports are likely to fall, with its domestic consumption suffering, too, because of rising unemployment and weakening consumer confidence, the World Bank said. Private sector demand is also likely to fall, though government spending would increase dramatically to fill the gap.

Absorbing the shock and maintaining the overall growth of the economy will be the biggest policy challenge for China next year, said David Dollar, World Bank's country director for China.

China announced a $586-billion economic stimulus package on Nov 9 to boost domestic demand and insulate the economy from the effects of the global financial crisis.

"Our forecast for 2009, which sees GDP growth of around 7.5 percent, has more than half of that coming from government influenced spending," Louis Kuijs, senior economist of the World Bank in China, told a press conference Tuesday.

The proportion of government spending-related contribution would be about 1.5 percentage points higher than last year.

The first half of next year will be the most difficult time for the economy, Kuijs said.

Imports across the world will drop further next year because of which China could see its export growth fall into the negative territory for the first time since 1982, Kuijs said. That could be very bad news for the Chinese economy, for it still relies heavily on exports for its growth.

The revaluation of the yuan has been mild in recent months, which the World Bank said had benefited the country as well as the rest of the world.

The Chinese authorities seem to have decided to ensure a more stable yuan against the dollar, Kuijs said. "That has been important not only for China, but also internationally it has been an element of stability in the international financial landscape. Such an approach has made sense and has been good for China and international financial stability."