The World Bank cut its forecasts for Chinese growth in anticipation of slower but more stable global growth over the next few months, revising its predictions for Chinese future growth from 8.4% to 7.7% in 2013.
Written by Chris White
The World Bank has also revised its predictions for overall Chinese global growth from 2.4% to 2.2%.
Over the past few decades the Chinese economy has heavily relied on its exports and public investment to boost economic growth. However, with the decline in the purchasing power of Western consumer markets the demand for Chinese exports has diminished, leaving investors concerned as to whether China can sustain its high growth rate.
With the decline in the Western consumer markets China has taken measures to boost its own domestic consumption to counteract the offset and rebalance China’s economy but economists believe that the restructuring of China’s economy may disrupt Chinese growth over the short term.
The latest revisions undermine the recommendations featured in the World Bank’s annual report on China released last December, in which the bank’s analysts claimed that government stimulus measures and the approval of both private and public works of infrastructure would assist in boosting Chinese economic growth.
However, with the recent slowdown in play the bank is no longer sure if Beijing’s infrastructure projects valued at US$150 billion / £94 billion, are able to weather China’s current investment based growth model.
The World Bank’s forecast said: “The main risk related to China remains the possibility that high investment rates prove unsustainable, provoking a disorderly unwinding and sharp economic slowdown. Should investments prove unprofitable, the servicing of existing loans could become problematic – potentially sparking a sharp uptick in non-performing loans that could require state intervention.”
The World Bank forecasts paint a picture where economic recovery in any large developing country such as Brazil or India, would be most likely “modest” at best, whereas the flow of wealth through traditional consumer regions such as the USA/Canada and Europe would remain “subdued”.
Speaking to reporters about the new forecasts the World Bank’s Chief Economist Kaushik Basu said: “While there are markers of hope in the financial sector, the slowdown in the real economy is turning out to be unusually protracted. This is reflected in the stubbornly high unemployment in industrialised nations, with unemployment in the eurozone actually rising and in the slowing growth in emerging economies.”
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