World Bank raises China's 2011 economy forecast
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The World Bank on Thursday revised its forecast of China's GDP in 2011 from previous 8.7 percent to 9.3 percent and suggested a fully normalized macro policy stance to address the macro risks posed by inflation and the housing market.
In its latest quarterly update of China's economy, the World Bank said that China's economic growth has remained resilient as the macro stance moved towards normalization and the economic outlook remains broadly favorable.
The World Bank had predicted that China's GDP growth would slow to 8.7 percent in 2011 in its last quarterly report released last November.
The global growth outlook has so far been little affected by the higher raw commodity prices and the earthquake in Japan. Domestically, headwinds from a normalized macroeconomic stance, inflation, and somewhat slower global growth is likely to be partly?cushioned by solid corporate investment and a still robust labor market, and an expected slowdown in mainstream housing construction should in part be compensated by the government's ambitious?affordable housing?construction plans, said the report.
The report predicted another decline in the current account surplus in 2011 with the surge in raw commodity prices.
However, whether the trend towards a lower external surplus and lower dependence on external trade will be sustained remains to be seen, said the report.
The report finds that inflation should moderate eventually with food price increases slowing and core inflation remaining in check, given quite a bit of adjustment to the macro stance already.
"However, with much of the impact of the higher oil and industrial commodity prices still in the pipeline, inflation expectations are still high and there is little spare capacity in the economy. Therefore, a full normalization of the macro policy stance is important," said Louis Kuijs, senior economist of the World Bank.
It is too early to stop the macro tightening as inflation and property market risks are still high. Two way risks are better dealt with by maintaining fiscal and monetary flexibility, he said.
The report predicted that China's economic growth will slow to 8.7 percent in 2012.
