RTTNews - The World Bank on Thursday raised its growth forecast for China, although it said it does not expect a high-single digit rebound until the world economy recovers convincingly. At the same time, the bank said there was no need for an additional stimulus for the economy.
In it Quarterly Update, the World Bank raised its 2009 growth forecast for the country to 7.2% from 6.5% estimated in March. Growth in China should remain respectable this year and next, although it is too early to say a robust sustained recovery is on the way, Ardo Hansson, Lead Economist for China said. The Chinese economy grew 6.1% in the first quarter, its slowest pace since the data began in 1992.
Hansson indicated that government influenced investment would strongly support growth for 2009, but there were limits to how much and how long China's growth could diverge from global growth based on the government influenced spending.
The quarterly report found that while monetary stimulus led to a surge in bank lending, fiscal stimulus was locked in infrastructure oriented projects. In its earlier report, the World Bank found that the economic stimulus had an effect of stabilizing the economy, but Louis Kuijs, Senior Economist and main author of the latest Update pointed out that there would no need for additional stimulus at present. This was because the fiscal deficit was already on course to be significantly higher than budgeted this year and any additional stimulus would reduce the scope for stimulus next year.
The world bank indicated that prospects of stabilization of economic activity was visible as the financial markets showed less strains. However, weak exports continued to drag down economic growth. Consumption was holding up at present, but is not likely to accelerate.
Similarly, market based investments were lagging, and was this likely to continue as profit margins were being squeezed. The risk of global deflation seemed low, but spare capacity would continue to put downward pressure on prices of manufactured goods, the bank said.
In the meantime, the World Bank indicated that with weak global demand China's growth need to be internally generated, by boosting consumer spending in particular. The transition should be to a more consumption-led, service sector-oriented, and labor-intensive growth by transferring resources to sectors that can thrive in the new setting and also protect surviving domestic markets and permanent urbanization, it said.
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