World Bank raises China 2008 growth forecast to 9.8%

BEIJING, June 19 (Xinhua) – Reflecting strong service sector activity, the World Bank raised its forecast for China’s 2008 economic growth to 9.8 percent, from 9.4 percent, in a report released on Thursday.

In April, the bank downgraded its forecast to 9.4 percent from the 9.6 percent prediction made in the beginning of 2008 and 10.8 percent made in mid-2007.

The upward revision this time largely reflected data showing stronger service sector growth in revised gross domestic product (GDP) data, said the World Bank Beijing Office in its Quarterly Update for China.

China’s National Bureau of Statistics (NBS) has raised the country’s 2007 GDP growth figure by 0.5 percentage point to 11.9 percent, the fastest since 1994. The NBS cited service industry growth in its revision.

The bank’s report said that most developing and emerging markets, like China, would outperform high-income countries as they were less directly exposed to the financial turmoil and would see a modest, orderly slowdown.

China’s economic growth had slowed to a more sustainable pace, which in part reflected less buoyant investment, but the country’s domestic economy was holding up well, it said.

Exports, backed up by strong international competitiveness and a robust domestic economy, would support China’s 2008 growth amid weak, uncertain global prospects, it claimed.

It noted that although damage from the earthquake that hit southwestern China in May to the affected area was huge, the macroeconomic impact was likely to be modest as the affected area accounted for only a small part of .

The report pointed out that headline inflation was receding while non-food price pressures emerged.

Some spill-over from higher food prices was flowing into wages and some other prices, while the impact of recent industrial commodity and oil price hikes was in the pipeline.

However, generalized spill-over to consumer prices had remained limited and headline consumer price inflation was expected to recede gradually, it said.

China’s consumer price index (CPI), a major gauge for inflation, eased by 0.8 percentage point month-on-month to 7.7 percent in May. In April, it rose 8.5 percent after hitting a 12-year high of8.7 percent in February.

The producer price index, which measures the value of finished products leaving the factory, rose 8.2 percent year-on-year in May. The rise was 0.1 percentage point higher than in April.

The World Bank report suggested that there was no need to ease the overall macroeconomic stance, but it called for vigilance and flexibility, given global uncertainties.

“If there is a more serious slowdown than we currently envisage, fiscal easing could be considered,” said Louis Kuijs, the report’s main author.

Containing the spill-over of raw material price pressures and inflation expectations would require relatively tight monetary policy. China’s current macroeconomic situation called for good coordination between fiscal and monetary policy, according to the report.

“Bringing prices of fuel closer to levels that reflect the scarcity of energy is important for rebalancing and to reduce distortions,” Kuijs said.

China imposes price caps on gasoline and other refined oil products. Since the caps mean the country’s major oil companies can’t pass on costs to consumers, the government provides subsidies to cover most of their losses.

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