Beijing, China (BBN)- China’s domestic economy and the government’s stimulus policies will be key to sustaining this vital pole of growth to the world, according to the World Bank’s latest China Quarterly Update released on Tuesday.
The report forecasts that China’s GDP growth rate will be around 7.5 per cent in 2009 – down from 9.4 percent in 2008. It also forecasts that China’s export growth is likely to be low in 2009 – around 3.5 percent (in real terms) compared to 11 percent in 2008.
The impact of the global financial crisis is spreading, the report says, with risk aversion and deleveraging leading to a funding squeeze that affects demand in many countries. This includes many emerging markets that, as a group, buy more than 50 percent of China’s exports and until recently continued to see strong import growth.
The report analyzes some of the domestic factors that have already made China’s economy slow down in 2008 compared to the high pace of 2007.
Weakness in the real estate market, partly reflecting an earlier tightening in macroeconomic policies, is now feeding through to several “upstream” industries such as cement and steel.
Looking ahead, private sector investment is likely to be weighed down by the unfavorable external prospects and continued weakness in real estate. Private consumption growth is likely to soften in 2009, but will receive some support from fiscal policy.
At the same time, the report says inflation is coming down steadily. After absorbing higher food and energy prices, headline inflation has receded and, with sharply lower raw commodity prices, inflation is not a concern at this point.
With prospects for growth and inflation changed rapidly, the government’s more expansionary macroeconomic stance and higher government-influenced spending is going to play a key role in 2009.
BBN/SI/SS/AD-26November08-10:10 AM (BST)