world growth

world growth

Monday, June 29, 2009

World Bank raises China 2009 GDP growth to 7.2 percent

BEIJING (AP) — The World Bank raised its 2009 economic growth forecast for China from 6.5 percent to 7.2 percent due to its stimulus-driven investment boom but cautioned Thursday it was too soon to say a sustained recovery was on the way.

The stimulus impact is bigger than expected and will "strongly support growth," said Ardo Hansson, the bank's lead China economist. The 4 trillion yuan ($586 billion) plan is aimed at shielding China from the global slump by pumping money into the economy through spending on building airports and other public works.

"Growth in China should remain respectable this year and next, although it is too early to say a robust recovery is on the way," Hansson said at a news conference.

Trade and private investment will remain weak, consumption will slow and a full-fledged recovery has to wait for the global economy and export demand to rebound, the Washington-based lender said in a quarterly report.

China's economy grew 6.1 percent in the first quarter from the same time last year, the strongest rate of any major country but below the government's 2009 target of 8 percent and far from 2007's explosive 13 percent.

Thursday was the first time the bank has raised its outlook for China since November, when it slashed its 2009 forecast from 9.2 percent to 7.5 percent. The bank cut that again in March to 6.5 percent. The bank said the growth rate should rise slightly in 2010 to 7.7 percent.

Hansson expressed surprise at Beijing's "Buy China" order, reported this week by state media, for stimulus projects to use domestically made goods. Foreign business groups appealed to the government Wednesday to avoid protectionism, warning it might hurt Chinese and foreign companies at a time when cooperation is needed to revive global growth.

"China had earned an enormous amount of goodwill and was leading the charge globally to make sure protectionism did not take off," Hansson said. "I think that position, that leadership reflected an understanding that China, relative to many other economies, has a lot more to lose from protectionism given the importance of the export sector."

The World Bank report highlighted China's dependence on government spending to support growth.

The stimulus will supply up to 6 percentage points of this year's expansion, with private activity producing 3.6 percentage points, according to Louis Kuijs, a World Bank economist. He said the contraction in exports will be severe that trade will subtract 2.4 percentage points from this year's growth, resulting in the forecast total of 7.2 percent.

"We see very little growth coming out of the market-based economy in 2009," Kuijs said. "We do expect a nice pickup in exports next year, so that will help."

Government spending boosted domestic investment in factories, real estate and other fixed assets by 32.9 percent in the first five months of the year.

The World Bank cautioned there was a limit to how much China could buck global trends through stimulus spending while exports are weak.

May retail sales rose 15.2 percent from a year earlier, but the growth rate is falling, indicating Beijing has yet to spur a rebound in private spending. May exports plunged by a record 26.4 percent from the same month of 2008.

"We think that this surge in government-influenced investment is unlikely to lead to rapid growth and a recovery in China in the current global environment," Kuijs said.

The World Bank estimates each percentage point of lost growth in China's non-agricultural gross domestic product growth means 5.4 million fewer jobs.

Nevertheless, Kuijs said the bank sees no need for more stimulus plans this year because Beijing already has spent so heavily.

"It would be good to have some fiscal firepower left next year," Kuijs said.

1 comment:


miércoles 1 de julio de 2009

CHINA and BRAZIL announced yesterday that from now on, their trade relations will be held not in dollars, but in their respective currencies, according previously a fair change rate.

YUAN first appearance in an international trade agreement seems not to scare US dollar.

Nevertheless, this fact has, according to my view, an incredible psychological impact on the future trends....

BRAZIL is the main latinamerican economy. CHINA is the main economy in ASIA, together with JAPAN.

Then, two of the main economies in the world are ready to trade without the arbitrage of US Dollars.

The ALBA ( the populism movement in South America ) leaded by Chavez, Venezuela president, is ready to do the same with oil and other raw materials exports.

Once again, the future impact will depend on the capacity of CHINA economy to reduce exports to the US and begin serving its domestic demand. Analysts say this won´t happen till 2015.

This BRAZIL-CHINA movement is the 1st attack to the DOLLAR hegemony as a reference currency and therefore, as an arbitrage currency for foreign commercial agreements.

CHINA has to go planning the YUAN international show up to the world.
But, as usual, CHINA manages things their way, just like Frank Sinatra... CHINA will begin trading with those countries key for its economy, and step by step, it will be going out of its yuan fixed rate by billateral compromises.

In the middle of a global economic downturn, this is not good news for US Dollar. Since, and although americans want a weak dollar to begin exporting again,... we must not forget that the US is moreover an importing country.

If CHINA goes reducing its exposure to US exports, the US will have problems to stabilise its currency.

EURO seems to be absent from this battle, but obviously EURO has nothing to offer to the world, since EUROPE remains as a dead continent, only healed some times by Germany auto and heavy manufacturers, Italian fashion and car industries, and France, or Spain touristic acceptance.

I forecast a volatile currency market for the next 6-12 months, and a huge risk on US dollar stability. Therefore, my advice for EURO holders resides on keeping the EURO exposure vs USDollar and wait for future events.

Nevertheless, something with stronger impact seems to go rooting in the horizon. And it is not obviously green ...

The huge Public spending of OBAMA policies, the forecasted high inflation rates for the next 2 years will not help a lot.

Jose Luis Revilla Escudero
WWShares, Inc
-Global Wealth Management-