China Economy

World Bank raises China growth forecast for 2012

PUBLISHED : Thursday, 20 December, 2012, 12:00am
UPDATED : Monday, 30 May, 2016, 5:01pm

The World Bank has raised its forecast for mainland China's growth this year and next, citing easing credit conditions and a pickup in investment, but projected a slowdown in 2014.

The mainland's gross domestic product (GDP) may expand 7.9 per cent this year, the lowest since 1999 and below the 9.3 per cent growth rate posted in 2011, the World Bank said in its East Asia and Pacific Economic Update issued yesterday.

The forecast was higher than a projected expansion of 7.7 per cent made by the World Bank in October. Acceleration in industrial production and fixed-asset investments "suggested that China's economy was bottoming out," the bank said. Beijing's official target for 2012 calls for 7.5 per cent growth.

The World Bank also lifted its forecast for 2013 GDP growth to 8.4 per cent from a previous estimate of 8.1 per cent.

The projections reflect the weak external environment, property market corrections and the impact of supportive policy measures, the World Bank said. "Downside risks remain in the uncertainty of the euro area, China's biggest trade partner", it noted.

Inflation will moderate to 2.8 per cent in 2012, and may rise to 3.3 per cent in 2013 due to a rebounding economy and the lagging effects of an accommodative monetary policy, it said.

In 2014, China's GDP growth will likely slow to 8 per cent, as a result of Beijing's structural reforms aimed at reducing reliance on investment and exports, the bank said: "China's near-term policy challenge is about balancing the trade-off between supporting growth and reforming."

Beijing should focus on fiscal policies such as targeted tax cuts, social welfare spending and other social expenditure to support consumption, it said.

The East Asia and Pacific region, which may contribute almost 40 per cent of global growth this year, is expected to expand by 7.5 per cent. The pace would be lower than the 8.3 per cent growth in 2011, but is set to recover to 7.9 per cent in 2013, the bank said.

"Most countries in the region have retained their strong macroeconomic fundamentals and should be able to withstand external shocks - but considerable risks remain," the bank said. Among other risks, it cited policy instability in the euro zone, the problem of the fiscal cliff in the US and a possible sharper drop in investment growth on the mainland.

Quantitative easing, known as QE, in the West may cause an influx of capital, which would put pressure on prices and create asset bubbles, the World Bank said, adding it may not necessarily do so. "QE1 did but QE2 did not," it said.

Countries could counter capital inflows through capital controls in the near term, while cutting interest rates or appreciation of local currencies isn't preferred, the World Bank said.