The World Bank cut its 2009 growth forecast for China today, projecting the slowest pace of expansion since 1990 as the impact of global financial turmoil intensifies and the real estate sector remains in the doldrums.
In its latest update on the Chinese economy, the bank lowered its outlook for 2009 gross domestic product growth to 7.5 per cent from 9.2 per cent - a forecast it had made in June before the international financial crisis took a serious turn for the worse.
It already expects growth this year to moderate to 9.4 per cent, the first single-digit pace of expansion since 2002, from a breakneck 11.9 per cent in 2007.
Louis Kuijs, the senior economist in the bank's Beijing office, said he was significantly less optimistic about private-sector investment than he was half a year ago as the troubles of the export and property sectors spread through the economy.
"China is going to face a difficult coming six months," he told a news conference to present the report. Heavy industries, such as steel and cement, had already slowed remarkably, he said.
One silver lining was that, with growth weakening, inflation had disappeared from the radar, Mr Kuijs said.
The bank expects consumer prices to rise just 2 per cent next year after a 6.5 per cent increase in 2008.
"Putting these two things together, there is, unambiguously, significant room and need for a more expansionary macroeconomic stance," Mr Kuijs said.
Interest rates probably had room to fall further over the next year, on top of three cuts since mid-September, but Mr Kuijs said the recent abolition of credit quotas was at least as important, if not more so, than a drop in borrowing costs.
If the bank's forecast proves to be spot on, it would be China's weakest GDP growth since 1990, when the economy expanded just 3.8 per cent in 1990; growth in 1999 was 7.6 per cent.
Mr Kuijs said the risks to the forecast were more or less evenly balanced, with the prospect of weak private-sector demand offset by the likelihood of a big boost from the 4 trillion yuan ($586 billion) stimulus package that Beijing unveiled on November 9th.
The bank expects government-influenced spending to account for more than half of next year's growth.
Net exports, by contrast, are likely to lop 1 percentage point off GDP growth as overall imports substantially outpace exports, which the bank expects to grow just 3.5 per cent in real terms in 2009, down from 11 per cent growth this year.
It would be the first time in many years that net external trade has subtracted from growth, the report said.