MercoPress. South Atlantic News Agency

World Bank forecasts China to expand 6.5% in 2009

The World Bank estimates China's gross domestic product for 2009 will be 6.5%, falling short of China's own prediction of 8% growth for the year. Still, the World Bank says China's economy is holding up relatively well and it sees plenty of room for the government to implement effective stimulus measures.

In a report released in Beijing, the bank says the estimate is significantly lower than potential growth. This comes as Chinese exports continued to decrease by 25 percent in February. And, the economic forecast for this year is generally sombre.

The World Bank predicts a 1.5% drop in global GDP for 2009.

World Bank officials were positive about the fundamentals of China's economy and the effect of the Communist Party's 585 billion USD stimulus package. Louis Kuijs, the principle author of the World Bank's quarterly update, says available data indicates the government stimulus package is working.

“It's leading to increased financial flows. It's leading to increased activity” said Kuijs.

“And, it's leading to confidence effects, sentiments that are all combined giving support for China's economy in this year ahead.”

The World Bank estimates 75 percent of China's growth this year will come from government-influenced spending.

Last week, Chinese Premier Wen Jiabao called on China to do whatever is necessary to meet the government's 8% growth target. But the World Bank's Kuijs says, instead of focusing solely on GDP expansion, China could work on strengthening the social safety net, improving its service sector and growing domestic consumption.

“It may be just as appropriate to shift the focus, as much as possible, to medium and long-term objectives and challenges, instead of a very narrow focus on short-term growth objectives,” added Kuijs.

So far, most predictions by private-sector economists put China's 2009 GDP growth in the five to eight percent range. This would mean China will continue to grow in a year where many other countries will not, but it is a sharp decline from the country's 13% expansion in 2007.

A Chinese government think tank this month forecast first-quarter growth would slow to 6.5%, from a 6.8% pace in the fourth quarter last year.

The World Bank warned that the drop in trade was set to hurt investment and job creation in China. It expects between 16 million and 17 million non-farm jobs to disappear this year, but said the key to avoiding instability was an effective social welfare system.

But analysts are particularly worried about a slowdown in China, due to the threat of social unrest if the economy stalls.