World Bank raises China growth forecast

June 18, 2009

, BEIJING, Jun 18 – The World Bank on Thursday raised its forecast for growth in China this year to 7.2 percent from 6.5 percent, citing an unprecedented public spending drive as the main reason for its revision.

But the bank also warned it was too soon to declare an end to the crisis and said the world\’s third-largest economy may have to live with the possibility that exports will not be as spectacular as before.

"Developments in the real economy have been somewhat better than expected three months ago. More importantly, bank lending in the first part of 2009 has been much larger than expected," the World Bank said.

"Government expenditure has also substantially outpaced expectations in the first five months. In this light, we forecast (economic) growth of 7.2 percent in 2009," it said in its quarterly update on China.

China began to feel the impact of the global financial crisis in the second half of last year, and in response unveiled an unprecedented 580-billion-dollar stimulus package aimed at boosting domestic demand as exports dived.

The World Bank said that without the massive government injection into the economy, its growth forecast for this year would have been little more than one percent.

China, whose trade-dependent economy saw double-digit growth every year from 2002 to 2007, reported growth of nine percent last year and just 6.1 percent in the first quarter of this year.

However, a growing body of evidence has given rise to hopes, both at home and abroad, that China could emerge from the global crisis earlier than expected.

"Our economy is at a critical moment as it steadily moves in an upward direction," Chinese Premier Wen Jiabao said in a cabinet meeting Wednesday, according to the state-run Xinhua news agency.

While predicting "respectable" growth in 2009 and 2010, the World Bank warned it was too early to say if a robust sustained recovery was on the way.

"There are limits to how much and how long China\’s growth can diverge from global growth based on government influenced spending, given that China\’s real economy is relatively integrated in the world economy," it said.

"Meanwhile, market-based investment is likely to continue to lag for a while because of the squeeze on margins amidst spare capacity in many manufacturing sectors."

Consumption was unlikely to pick up, the World Bank said, but argued that it was not necessary or appropriate to add more government stimulus in 2009.

"One reason is that the fiscal deficit is likely to be significantly higher than budgeted and additional stimulus now reduces the room for stimulus in 2010," the report said.

Looking into the next decade or so, the World Bank said Beijing may have to get used to less stellar growth due to a more permanent impact on its exports.

"We estimate that we may have to reduce our expectations of medium-term trend growth in China by two percentage points or so, which is significant but not catastrophic," World Bank economist Louis Kuijs told reporters in Beijing.

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