Tuesday, November 25, 2008

Yuan Watch : Analysts reduce the 'numbah'

From EarthTimes
Tue, 25 Nov 2008 11:00:48 GMT

Beijing - The World Bank lowered its 2009 economic growth forecast for China from 9.2 per cent to 7.5 per cent Tuesday while welcoming the government's stimulus package but urging more rebalancing of the economy. China's efforts to expand its domestic demand and stimulate the economy through infrastructure spending would be crucial to how it fares against the growing impact of the global financial crisis, the World Bank said in a quarterly report.
In early November, the government announced a 4-trillion-yuan (586-billion-dollar) package to finance 10 major programmes of infrastructure and other spending over the next two years.
"Our forecast for 2009, which sees GDP [gross domestic product] growth of around 7.5 per cent, has more than half of that coming from government-influenced spending," said senior economist Louis Kuijs, the report's main author.
The economic stimulus package was expected to have a "measurable impact on output in the short term," Kuijs told reporters.
"The emphasis will be on accelerating and increasing infrastructure and other investment but of a different nature than in the wake of the Asian crisis with many projects focusing on broad long-term development and improving living standards," David Dollar, the World Bank's China director, said of the government's economic plan while referring to the financial crisis that hit Asia a decade ago.
The report forecast a continuing slowdown in Chinese exports next year but said the new economic stimulus policies give China a "good opportunity to rebalance its economy" in line with its long-term objectives.
"The government can use the opportunity of the fiscal stimulus package to take more rebalancing measures, including on energy and resource pricing; health, education, and the social safety net; financial sector reform; and institutional reforms," the World Bank said.
If the World Bank's forecast proves correct, China's growth would drop to a similar level to the 7.6 per cent posted in 1999.
Its export-boosted economy then accelerated to reach 11.9 per cent GDP growth last year and is expected to fall to around 9.4 per cent this year.
The World Bank estimates that China's gross exports provide almost 40 per cent of GDP, but that its huge processing trade means exports only make up 20 per cent of GDP in value-added terms.
"Nonetheless, exports are more important in China than in other large emerging market economies, even as China is more robust than most to external shocks, because of its strong macroeconomic fundamentals and large balance of payment surpluses," the report said.
It said the impact of lower raw material prices on inflation was "one bright spot for China."
The government's economic package is designed to finance 10 major programmes including transportation, rural projects, low-cost housing, environmental projects and post-disaster reconstruction.

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