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News | Tuesday, 26 November 2008

Chinese GDP rate to hit 19-year low in 2009

The World Bank yesterday cut its growth forecast for China next year to 7.5 per cent, the slowest rate of expansion since 1990, and said the impact of the global financial crisis was likely to “intensify”.
In its latest quarterly report on the Chinese economy, the bank reduced its forecast for next year from 9.2 per cent and said the government should accelerate steps to rebalance the economy away from exports and investment towards more domestic consumption.
The sharp cut in expected output growth reflected the rapid deterioration in the Chinese economy over the last two months, as a slowdown in the local housing market had combined with weaker demand from export markets.
The reduced growth rate still relied heavily on higher public spending, which the bank said would contribute more than half of the expected increase in output next year.
Earlier this month, the Chinese government said it would spend RMB 4,000 billion over the next two years on infrastructure and welfare projects.
Louis Kuijs, economist at the World Bank in Beijing, said: “The impact of the international financial and economic turmoil on China’s economy has been manageable so far, but is expected to intensify.
“Looking ahead, prospects are for a sharp reduction in export growth,” he added.
The bank said that exports had so far held up relatively well given the slowdown in the United States (US), with the 13 per cent real increase in exports from China more than double the rate that global imports were expanding.
Chinese companies would also likely gain market share during a global slowdown because of their strong competitiveness, even though the exchange rate had appreciated recently against most currencies.
However, export growth was likely to slow sharply as the financial market turmoil began to hit the economies in other emerging markets.
Indeed, the World Bank said that net exports were likely to reduce the growth rate by 1 percentage point in 2009 – the first negative contribution to growth from trade “in many years”.
Kuijs said that China had ample room to lift public spending in face of the rapid slowdown after running modest fiscal surpluses in recent years, and predicted the budget deficit next year would rise to 2.6 per cent of GDP.
However, the bank said it could be difficult to spend the money in an efficient and transparent manner, given the large size of the likely fiscal stimulus and the speed with which it was being executed.

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26 November 2008
ISSUE NO. 560

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