The World Bank cut its forecast for China’s growth this year from 7.5 percent to 6.5 percent yesterday amid plunging exports, but expressed confidence in Beijing’s ability to keep the world’s third-largest economy expanding amid global turmoil.
The drop in trade will hurt investment and job creation, the bank said in a quarterly report. But it said China still should grow faster than other major countries due to its huge stimulus package and strong banks, which were unhurt by the global crisis.
“China is hit very hard by an external shock,” Louis Kuijs, the bank’s senior China economist and the report’s main author, said at a news conference.
Kuijs said that also could push down prices, which can force companies to cut wages and investment.
Chinese Premier Wen Jiabao (溫家寶) said last week China should meet its official 8 percent growth target despite a 25.7 percent drop in exports last month. Forecasts by private sector economists range from 8 percent to as low as 5 percent — the strongest of any major country but a sharp drop from 2007’s stunning 13 percent expansion.
Wen said Beijing was ready to expand its 4 trillion yuan (US$586 billion) stimulus if the downturn’s impact downturn worsens, though he gave no details.
Beijing still has “plenty of space to implement forceful stimulus measures,” with more spending and interest rate cuts, the World Bank report said.
“We see China as a relative bright spot in a rather gloomy global economic picture,” said David Dollar, the bank’s country director for China.
The stimulus is intended to reduce reliance on trade by pumping up domestic consumption through spending on building highways and other public works. But retail sales growth is weakening, suggesting Beijing has yet to spur a rebound in private sector spending. Kuijs said government outlays alone cannot fill the gap left by falling exports.
Yesterday was the second time in four months the Washington-based World Bank has cut its China growth forecast for this year, following a reduction in November from 9.2 percent to 7.5 percent. Growth at 6.5 percent would be the weakest since 1990’s 3.8 percent and below the 7.6 percent reported in 1999.
“We don’t foresee any significant recovery in China’s growth until the world economy recovers,” Kuijs said.
Dollar said the global economy is expected to shrink by 1.5 percent this year, with no recovery until late in the year or next year.
“We should eventually see some recovery in exports later in the year, but on the whole the prospects remain pretty somber,” Kuijs said.
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