World Bank sees slowest China growth in 19 years

PUBLISHED : Wednesday, 26 November, 2008, 12:00am
UPDATED : Wednesday, 26 November, 2008, 12:00am
 

Forecast cut to 7.5pc as demand for mainland goods weakens

The World Bank expects China will experience the most sluggish growth in 19 years next year despite unprecedented measures by Beijing to boost spending and investment.

With the global financial crisis continuing to spread, funding shortages and battered confidence are souring demand in countries that consume half of China's exports, according to the World Bank's quarterly report yesterday.

This will weigh on the mainland's export-based economy, prompting an urgent need to rebalance its growth model to encourage more domestic consumption.

The World Bank cut its forecast for next year to 7.5 per cent from 9.2 per cent previously, the most bearish among major financial institutions.

'The emphasis will be on accelerating and increasing infrastructure and other investment,' said David Dollar, the World Bank country director for China.

'As China builds infrastructure as part of the stimulus package, we are hoping it's focusing on infrastructure that addresses future needs such as energy efficiency, urban public transport and high-speed rail.'

Beijing's unprecedented 4 trillion yuan (HK$4.54 trillion) spending spree designed to spur domestic demand over the next two years will not be the last, the World Bank believes.

'Additional measures are necessary to make headway with rebalancing the pattern of growth,' it said. 'This includes resource and utility pricing, government spending on health, education and social security as well as financial reform.'

The government-induced spending would produce half of next year's economic growth, it added.

The central government will undertake about 1.2 trillion yuan out of the 4 trillion yuan spending, with the rest coming from local governments and state enterprises.

The spending, to be funnelled into infrastructure, real estate, environment, health and education, aims at drumming up domestic demand, imports and employment.

The World Bank forecasts China's export growth will slow markedly to 3.5 per cent next year from an estimated 11 per cent this year. It was even more pessimistic than the International Monetary Fund, which anticipates the mainland's economic stimulus measures to account for 8.5 per cent of growth next year. The mainland's economic growth stood at 11.9 per cent last year.

Its estimate is also below the 8 to 9 per cent growth forecast by the National Development and Reform Commission.

However, China's prospects were not totally bleak, Mr Dollar said, pointing to receding inflation.

'The outlook for raw material prices means that looking ahead, inflation is no longer a concern in the near future,' he said.

Inflation drifted lower to 4 per cent last month, the lowest in 17 months.

Economists widely believe the country will fare better than many other emerging markets, helped by the massive spending and fiscal policies. They believe the spending spree will help shore up next year's economic growth.

However, China International Capital Corp chief economist Ha Jiming said the worst would not come until 2010. 'Next year won't be the bottom.'

Recessions in the European Union and the United States would mean poorer fortunes for China's exports next year, with weaker exports to linger until 2010, Mr Ha said.

He estimated the mainland's economy would climb 8 per cent next year and 7.8 per cent in 2010.

Merrill Lynch has estimated the mainland's economic growth at 8.6 per cent next year while Credit Suisse and Nomura Research Institute have said it will reach 8 per cent.

Cooling off

From 11 per cent this year, China's export growth is forecast to slow next year to: 3.5%

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