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Late in Tuesday's session, the World Bank cut its growth forecast for China to 6.5% from 7.5%. The bank cited dropping exports as a reason for the lowered forecast, but it did note that it is confident in China's ability to expand its economy in the current environment. The bank's quarterly report say that the drop in trade is going to negatively impact China's investment and job creation. Nevertheless, China should grow faster than other countries thanks to its stimulus package coupled with its strong banks, which have escaped the financial crisis unscathed. A week ago, China's Premier Wen Jiabao announced that the country should meet its official 8% growth target (which some believe must be met for the country to create enough jobs for its influx of new workers) although exports fell 25.7% in February. Economists expect China's growth to come in between 5% and 8%, which is sharply lower than 2007's 13% expansion, but better than any other major country.
The Premier announced that China will expand its $586 billion stimulus if the economic downturn continues, but no further details were given. The World Bank believes that China still has "plenty of space to implement forceful stimulus measures," through spending and interest rate cuts.
Yesterday was the second forecast reduction for China's growth, as the World Bank lowered its 2009 forecast to 7.5% from 9.2% in November. The current forecast growth 6.5% would be the worst since 3.8% growth in 1990. Some economists believe that China's economy will not grow until the world economy recovers, with one analyst noting, "We should eventually see some recovery in exports later in the year, but on the whole the prospects remain pretty somber."
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