WB boosts China 2009 growth forecast

November 4, 2009

, BEIJING, Nov 4 – The World Bank Wednesday upgraded its 2009 growth forecast for China to 8.4 percent on the back of huge public spending but said stronger domestic demand was needed to ensure a sustainable recovery.

The new prediction by the Washington-based lender in its quarterly update marked a sharp jump from its June forecast for 7.2 percent growth.

Economic growth in the Asian giant could hit 8.7 percent in 2010, it added.

"2009 has shown that even in a very difficult global situation, China can still grow quite robustly," World Bank senior economist Louis Kuijs, the main author of the report, told a news conference.

"Of course in 2009 emergency measures have been used and you can not continue to use (them) for a long time."

The upgrade by the World Bank follows similar moves by the International Monetary Fund and Asian Development Bank after the rapid turnaround in the world\’s third largest economy caught economists somewhat by surprise.

The strength of the Chinese economy has underpinned a "surprisingly swift" rebound in developing East Asia, the bank said, upgrading its 2009 growth forecast for the region to 6.7 percent from 5.3 percent in April.

Kuijs said it would be "easy" for China to achieve Beijing\’s oft-stated goal of eight percent growth this year.

This pace of growth is seen as vital for job creation and warding off social unrest in the country of 1.3 billion people.

But he warned a successful rebalancing of the economy was needed to ensure a sustainable recovery in the medium term.

"Now the government has basically succeeded in dampening the impact of the global crisis, it is a good time to concentrate … on rebalancing the economy and getting more growth out of the domestic economy on a sustainable basis," he said.

"This calls for more emphasis on consumption and services and less emphasis on investment and industry."

China grew by 8.9 percent in the third quarter — the fastest pace in a year — after expanding by 7.9 percent in the second quarter and 6.1 percent in the first three months, the slowest pace in more than a decade.

The recovery has been driven by a four-trillion-yuan (586-billion-dollar) stimulus package unveiled a year ago and a record 8.67 trillion yuan in bank lending in the first nine months of 2009.

China was expected to grow in 2010 even as public spending slowed, the bank said, as demand for Chinese-made goods overseas picked up.

"In 2010 the composition of growth is likely to change … Exports will probably stop being a drag on growth from end-2009 onwards and real estate investment looks set to be stronger," the bank said in the report.

"However, government-influenced investment, the key driver of growth this year, is bound to decelerate (and) market-based investment is likely to continue to feel negative pressure from the significant spare capacity in many manufacturing sectors."

"In all, we expect GDP growth to rise somewhat in 2010, with risks evenly balanced."

The bank said it saw no need yet for macroeconomic policies to be tightened while risks and uncertainties in the global economy remained high.

"Underlying inflation is not a concern for now. A somewhat supportive policy stance is appropriate, and it is particularly important to have flexibility to add or subtract support if needed," the bank said.

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