World Bank Raises China 2009 Growth Forecast to 7.2%

Thursday, June 18, 2009

The World Bank raised its growth forecast for China this year and advised policy makers to delay until 2010 any additional stimulus plan to boost the world’s third-largest economy.

China’s economy will expand 7.2 percent in 2009 from a year earlier, up from a 6.5 percent forecast in March, the Washington-based lender said in a quarterly report released today in Beijing. Stocks gained after the announcement.

The World Bank joins Goldman Sachs Group Inc., Morgan Stanley and UBS AG. in raising growth forecasts this year after a 4 trillion yuan ($585 billion) stimulus package triggered record loans and surging investment. The lender said it’s “too early” to say there is a sustained recovery, citing the economy’s dependence on government spending and echoing a State Council caution yesterday against excessive optimism.

It’s “not necessary, and probably not appropriate” for China to add fiscal stimulus this year, the World Bank said. Consumption is likely to slow, pushing down wages and employment, and the nation should retain room for stimulus in 2010, in case the global economy takes a turn for the worse, the bank said.

The Shanghai Composite Index rose 0.9 percent as of the 11:30 a.m. local time break in trading. Industrial & Commercial Bank of China Ltd. climbed 2 percent.

‘Critical’ Phase

Gross domestic product grew 6.1 percent in the first quarter this year from a year earlier, the least since 1999, as exports slid because of the global recession. The economy is in a “critical” phase, the State Council said yesterday, warning that a recovery is not yet on solid foundations.

“Overall growth prospects have improved somewhat, compared to three months ago, but with little carry-over into 2010,” the World Bank said. “The massive monetary impulse of the first five months will support economic growth in the coming quarters.”

Goldman Sachs forecasts an 8.3 percent expansion this year, Morgan Stanley estimates 7 percent and UBS predicts growth of 7.5 percent.

“I don’t think China will see a V-shaped recovery back to high single-digit growth rates,” said Louis Kuijs, the World Bank’s senior economist for China in Beijing. “The impact of the policy stimulus next year can realistically not be as large as it has been this year.”


(Bloomberg)