WB lowered China’s growth estimate to 7.7% in 2012

17 january 2013

China’s GDP growth may fall to 7.7 percent this year due to lackluster exports and lower investment growth, the World Bank said in a report on Monday.

The forecast for the expansion of the world’s second-largest economy is down from the 8.2 percent estimate it made in April.

In 2013, however, China’s growth is expected to rebound to 8.1 percent as the impact of stimulus measures kicks in, supported further by an uptick in global trade, the World Bank said in its East Asia and Pacific Economic Data Monitor.

“China’s growth of domestic demand in real terms has come down from last year, and GDP growth in the second quarter grew only by 7.6 percent compared to a year ago. Investment growth has slowed in particular, driven by last year’s measures to rein in investments in real estate,” the report said.

However, the relaxation in monetary policy earlier this year, and the stimulus measures by the local and central governments could again reverse the trend in the months to come, it said.

Economic growth in the East Asia and Pacific region may slow down by a full percentage point from 8.2 percent in 2011 to 7.2 percent this year, before recovering to 7.6 percent in 2013. Growth in developed countries will remain modest, with recovery in the region to be driven mainly by strong domestic demand in developing countries.

The report cites reconstruction spending in Thailand after last year’s floods as among the factors buttressing domestic demand in the region. In addition, countries like Indonesia — together with Thailand and Malaysia — are currently enjoying a boom in spending by their governments and the private sector on capital goods.

The report also notes that tensions in the eurozone have eased following the European Central Bank’s announcement that it would defend the euro in July and the launch of its bond-buying program that significantly calmed the markets. Also, the recent announcements by the United States Federal Reserve regarding a new round of quantitative easing to help stimulate the American economy, has helped revive the global equity markets.

However, the report says that considerable downside risks remain. Should conditions in Europe deteriorate sharply, the risks are high that developing economies might be affected. A crisis in the eurozone will adversely affect the economies in the East Asia and Pacific mainly through trade and links to the financial sector.