World Bank cuts China's 2009 growth forecast

[March 18, 2009]  BEIJING (AP) -- The World Bank cut its forecast of China's 2009 growth from 7.5 percent to 6.5 percent on Wednesday due to plunging exports but expressed confidence in Beijing's ability to keep the world's third-largest economy expanding amid global turmoil.

The drop in trade will hurt investment and job creation, the bank said in a quarterly report. But it said China still should grow faster than other major countries due to its huge stimulus package and strong banks, which were unhurt by the global crisis.

"China is hit very hard by an external shock," Louis Kuijs, the bank's senior China economist and the report's main author, said at a news conference. Kuijs said that also could push down prices, which can force companies to cut wages and investment.

Premier Wen Jiabao said last week China should meet its official 8 percent growth target despite a 25.7 percent drop in exports in February. Forecasts by private sector economists range from 8 percent to as low as 5 percent -- the strongest of any major country but a sharp drop from 2007's stunning 13 percent expansion.

Wen said Beijing is ready to expand its 4 trillion yuan ($586 billion) stimulus if the downturn's impact downturn worsens, though he gave no details.

Beijing still has "plenty of space to implement forceful stimulus measures," with more spending and interest rate cuts, the World Bank report said.

"We see China as a relative bright spot in a rather gloomy global economic picture," said David Dollar, the bank's country director for China.

The stimulus is intended to reduce reliance on trade by pumping up domestic consumption through spending on building highways and other public works. But retail sales growth is weakening, suggesting Beijing has yet to spur a rebound in private sector spending. Kuijs said government outlays alone cannot fill the gap left by falling exports.

The World Bank says it estimates each percentage point less growth in China's non-agricultural gross domestic product growth means 5.4 million fewer jobs. There are no comprehensive data on China's employment or job losses but the government says the crisis has thrown some 20 million migrant laborers out of work.

Wednesday was the second time in four months the Washington-based World Bank has cut its China growth forecast for 2009, following a reduction in November from 9.2 percent to 7.5 percent. Growth at 6.5 percent would be the weakest since 1990's 3.8 percent and below the 7.6 percent reported in 1999.

"We don't foresee any significant recovery in China's growth until the world economy recovers," Kuijs said. Dollar said the global economy is expected to shrink by 1.5 percent this year, with no recovery until late in the year or in 2010.

"We should eventually see some recovery in exports later in the year, but on the whole the prospects remain pretty somber," Kuijs said.

Some economists say China must grow by a minimum of 8 percent annually to produce enough jobs for millions of new workers each year. The World Bank has said, however, that there is no specific growth rate required to keep employment stable.

Communist leaders worry that job losses could fuel unrest and are promising to spend to create employment. They are promising more spending on health, education and other social programs to reduce the financial burden on Chinese families and encourage them to divert money to spending on consumer goods.

Kuijs said that if Beijing decides it needs another stimulus, it might be more effective if it focuses on social programs, job creation and household consumption, instead of more construction. He said that also might save Beijing money.

"There are limits to how much money you can spend usefully on investment-oriented spending," he said. "It may make just as much sense not to go for the second or third general fiscal stimulus but to do more in these areas such as using the social safety net to deal with the negative consequences of this crisis on people's livelihood and unemployment."

Consumer prices fell in February, raising the risk of deflation, but Kuijs said that was not a serious threat yet and Chinese policymakers have tools to fight it.

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World Bank: http://www.worldbank.org/

[Associated Press; By JOE McDONALD]

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