World Bank Cuts 2012 GDP Growth Forecast For China

Hard on the heels of the OECD’s latest economic outlook, comes the World Bank’s biannual regional economic update. This cuts the Bank’s forecast for China’s GDP growth for this year to 8.2% from 8.4%, bringing it in line with the OECD and IMF’s forecasts. But the Bank is less sanguine than the OECD about fast-tracking state infrastructure projects to stimulate the economy if necessary–which some in Beijing are promoting in the face of the economic slowdown. (Update: State Council moving in that direction.) The Bank remains nervous about inflation, which it sees ticking up in 2013 to 3.6% from 3.2% this year, though not regaining last year’s 5.4% and under the government’s 4% target.

The Bank thus also calls for restraint in easing monetary policy further, suggesting only using further cuts in banks’ capital reserve ratios, unless further falls in inflation turn real interest rates substantial higher. Instead, it says more reliance should be placed on easing fiscal policy in areas that match long-term social policies.

“Fiscal measures to support consumption, such as targeted tax cuts, social welfare spending and other social expenditures, should be viewed as the first priority,” the Bank says. “Stimulus would ideally be less credit-fuelled, less local government-funded, and less infrastructure-oriented.”

Like the OECD, the Bank sees the economy regaining momentum next year. Its conservative stance to dealing with the current slowdown leads it to forecast 8.6% GDP growth in 2013. The more stimulus-accepting OECD forecasts 9.3% GDP growth for next year.

The Bank’s big concern is that a slump in Europe will be transmitted through China to the rest of Asia. China accounted for two-thirds of the region’s $592 billion shipments to Europe in 2011. It would be the first to suffer if the crisis in the eurozone worsens, the Bank says, before passing the effects on to others in Asia by dint of its position as  the centre of the region’s production networks.

The World Bank’s numbers:

China's GDP growth, industrial production, employment, real wages and consumer price inflation

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