The World Bank and International Monetary Fund both see negative growth for the world economy in 2009, but both still see growth in China.
But while that’s good news for Australia, growth in some of our other major Asian markets, especially Japan, looks like being worse than expected in 2009.
But according to both organisations, we can expect a positive growth figure in China.
An aide to IMF managing director Dominique Strauss-Kahn, told reporters this week that the Fund now expects the world economy will shrink by 0.6% this year that compares to the World Bank’s estimate a week ago for negative growth of 1% to 2%.
The IMF had forecast global growth of just 0.5% in its January update of its global forecasts.
But growth in Japan will fall by an unsettling 5%, almost double the January forecast of a 2.6% contraction, and overall growth in Asia (excluding Japan) will be up 3.6%, compared with the earlier January forecast of 5.8%, as output in China slows.
The official didn’t provide a figure for China’s growth, but China will still be growing.
The January forecast said the Fund expected growth of 6.7% this year for China.
Seeing growth in countries such as Taiwan, Hong Kong, South Korea and Singapore are all forecast by their central banks to be negative this year, the IMF’s forecast means there is still some positive growth in China.
Now the World Bank has cut its growth forecast for China to 6.5% from 7.5% last November.
That compares with the 6.8% annual growth rate in the 4th quarter of 2008.
The Bank’s latest quarterly report on China said there were “early signs” of the economy stabilizing as government-backed investment counters a slump in exports.
“Although China’s growth is set to slow, it is still likely to outgrow most other countries.
"Stimulus policies will limit the extent of the slowdown by supporting domestic demand, production, and employment", the World Bank said.
"While China’s real economy has been hit hard by the global crisis, it is still holding up.
"The Update, a regular assessment of the Chinese economy, finds that China’s banks have been largely unscathed by the international financial turmoil and that the economy still has plenty of space to implement forceful stimulus measures.
"However, as the global crisis has intensified, China’s exports have been hit badly, affecting market-based investment and sentiment, notably in the manufacturing sector."
Premier Wen Jiabao said last week that China 8% growth target was “difficult, but possible,” adding that the government could add stimulus measures at any time.
The World Bank warned that its new 6.5% growth rate "is significantly lower than potential growth.
"The resulting spare capacity is therefore likely to lead to weaker market-based investment, less job growth and migration, downward pressure on prices, redirection of exports to the domestic market, and import substitution in the coming years.
"However, China is still likely to continue to outgrow most other countries, the Update says.
"Domestically, amidst the solid macroeconomic fundamentals, stimulus policies help dampen the downturn by providing support for activity and sentiment.
"Banks are keen to help finance growth, after having deleveraged in recent years.
"Private consumption has been fairly resilient so far and should be able to continue to grow significantly, while government-influenced investment is accelerating already.
"The update notes that China’s economic fundamentals are strong enough to look beyond 2009.
"So far, the policy response to the downturn has emphasized stimulating investment to help achieve the short term economic targets.
"Given the fiscal space, there is a strong case for expansionary policies. But there may be a case for less emphasis on short term growth and more on longer term issues."
"The Update also highlights the importance of financial sector reform.
"With inflation prospects subdued, there is scope for accommodative monetary policy.
"Deflation is a risk in principle, but policymakers have some tools to fight it.
"Further structural reforms in the financial system would help China manage the downturn and make the transition to a rebalanced growth model."
The global slowdown underscored the need for China to move to rely more on domestic consumption and less on investment and trade.
The government has “room to do more” to improve health, education and social security and to boost incomes, the report said.
This year’s planned fiscal deficit, which may be equivalent to 3.2% of gross domestic product, is “sizable but manageable,” the report said.
In Australian terms, a deficit of that size would be around $A35 billion, which on present indications, is what the 2009-10 budget outcome could end up.
China last November outlined $US586 billion in stimulus spending, much of that already in the pipeline.
Western analysts say it could be really around half to two thirds that figure. It is also spending over two years, with the bulk loaded into the 18 months from June onwards.
