World Bank has just downgraded and projected China’s GDP growth of 6.5% in 2009 in its China Quarterly Update released in March 2009. Concerning the circumstance of global crisis, China’s growth is also set to decline.
China’s economy rebounds sustainably
World Bank reminded, 6.5% is significantly lower than potential growth, and spare capacity is likely to lead to weaker market-based investment, redirection of exports to the domestic market and import substitution meanwhile the lower growth is not likely to jeopardize the economy and social stability.
China’s economy is likely to rebound sustainably but against the background of global economic downturn, this does not seem to happen soon. Government will help to stimulate the growth with the support of investment and consumption.
Fiscal deficit accounts 3.2% of GDP
Fiscal deficit mainly appears due to ￥4000 billion economic stimulus implemented by Chinese Government. China should be careful in continuing to expand fiscal stimulus. Once the downturn cannot recover, the deficit would be much worse.
But spare capacity is emerging in stimulating consumption and improving people’s living standards which is set to show up in health, education and social security. The consumption is growing slowly but still steadily.
Deflation risk maintains
It is reported CPI will only increase by 0.5% meanwhile, it was predicted by 2% according to the economic report released in Nov 2008.
CPI in Feb. firstly decreased since last six years, but it is not probably a signal for vicious deflation which means a sustained decrease in the general price level of goods and services. Due to the global crisis and the trend of productivity excess, it still remains the warning risk of deflation.
Foreign exchange increases to $425 billion
Quarterly update predicted, China’s foreign exchange will increase $425 billion to $2376 billion by the end of 2009 and project profit will be up to $425 billion which was estimated $416 billion last year.
World Bank reported that China’s exchange rate will continued to rise up in the coming 10 years, RMB depreciation won’t play tremendous role in export with the impact of global weakness. China’s export volume in Feb probably touched the bottom which dropped sharply by 25.7 % compared with the period last year, and the volume of the year in 2009 could be lower than 2008.