By Jennifer Yousfi
Managing Editor
The World Bank has lowered its growth forecast for China's economy in 2008 - from 10.8% to 9.6% - due to a global economic slowdown, which could threaten China exports.
"The world economy is going to be weaker, and this will have an impact on China," said Louis Kuijs, a bank economist who was the report's chief author, the Associated Press reported.
He added, however, that "China is in a relatively strong position."
The recent storms, which have caused an estimated $7.5 billion (53.8 billion yuan) in damage, are not expected to have long-term economic effects. But in the short-term, the disruption in transportation and ruined crops are expected to increase price pressures on some industrial goods and perishable items. [For a related article on "China's Nightmare Storms," which includes several strategies for managing your China-focused investments, please click here.]
The main threat to China's economic growth is a U.S. recession, and a subsequent decrease in consumer demand. A U.S. slowdown is also likely to affect other major China markets like Europe and Japan.
"China still faces potential problems as it tries to manage rapid growth, control a surge in inflation and cope with a flood of export revenues that are straining the central bank's ability to contain pressure for prices to rise," the bank's report said.
Inflation has thus far been contained to food, but, "the risk remains that it will be fed through into general inflation," Kuijs said.
The World Bank commended China for its tight fiscal policy as it works to restrain inflation. The central bank has raised interest rates in an attempt to curb inflation. The higher rates also make China a favorable investment target.
If foreign investors begin pouring money into China, the government may find it difficult to manage the money supply, especially when you consider the surge of liquidity already pouring in due to China's record export levels in recent years. The government reported a 25.7% increase in exports for 2007 to $1.2 trillion.
News and Related Links:
- BBC News:
World Bank sees a China slowdown
- The Associated Press:
World Bank Cuts China Growth Forecast