World Bank Raises China GDP Growth Forecast to 8.4%

Posted by: Frederik Balfour on November 3, 2009

The World Bank revised upwards its forecast for China’s GDP growth in 2009 to 8.4%, providing yet more evidence that the Chinese economy is in full recovery mode. Six months ago when China’s exports were plunging and Beijing’s $586 billion stimulus package had not yet kicked in the World Bank projected this year’s growth at just 6.5%. Its forecast for 8.7% growth in 2010 remains unchanged.

For close followers of China’s monthly economic indicators, the upgrade should come as no big surprise. China’s Purchasing Managers Index, or PMI, issued by the China Federation of Logistics & Purchasing with the support of the National Bureau of Statistics, has been indicating recovery for several months. The latest PMI figures released on November 2, showed that economic expansion is gathering force, showing a figure of 55.2 in October, its highest level since April 2008 when economic growth was nearly red-lining. The index, which reflects manufacturer’s orders, indicated an expansion for the eighth month in a row.

That’s welcome news for China’s neighbors. Their economies have become increasingly tethered to China’s in recent years, supplying the mainland with components and raw materials used as inputs into its monstrous manufacturing industry. Exports from those countries initially plunged along with China’s as U.S. and European consumers went into thrift mode, but the growth in Chinese domestic demand has helped offset that decline somewhat thanks to China’s pump priming and a huge turnaround in new residential property construction.

Here’s how the World Bank describes China’s recovery: “Most of the stimulus has shown up in infrastructure-oriented government-led investment. But some has been consumption-oriented and domestic demand growth has been broad based. Resurgent housing sales have started to feed through to construction activity. Investment in manufacturing is affected by spare capacity, but consumption has held up well.”

The authors of the report note that one of the big challenges facing the Chinese economy is to achieve more balanced growth. This is a major theme in Stephen Roach’s book “The Next Asia” China which I reviewed for BusinessWeek magazine in which Chinese consumers need to save less.

The World Bank East Asia and Pacific Update, which is published twice a year, also painted a brighter picture for Indonesia, which is expected to grow 4.3% this year as against a previous estimate of 3.4%. Estimates of 5.5% growth for Vietnam, and a 2.7% contraction for Thailand remained unchanged.

Singapore’s economy, one of the worst hit in Asia earlier this year by the global downturn, has catapulted its way out of recession, clocking a 14.9% quarter-on-quarter annualized growth in the third quarter. Year-on-year growth was 0.8%, compared with a contraction of 9.6 % and 3.2% in the first and second quarters. For more on this check Bruce Einhorn’s BusinessWeek magazine article “Singapore’s Economy Begins to Stir”.