Weak demand for exports and slowing investment has caused the World Bank to lower its forecasts for the country’s growth.
The Bank has said that it expects the Chinese economy to grow by 7.7% this year, a figure far lower than the initial projection of 8.2% it made in May. The nation’s exports have been harmed by the ongoing troubles in the Eurozone and the struggling recovery seen in the United States. The two areas are China’s biggest markets.
The global recession caused China to unveil a new batch of stimulus in its bid to maintain its high rate of growth. Unfortunately the new measures caused property prices to soar and raised the fear that the country could face the burst of a property bubble, similar to those seen in the United States and parts of Europe. They managed to offset this risk by curbing lending but this in turn contributed to a slowdown in growth.
“Economic momentum is expected to be weak during the coming months with limited policy easing, a property market correction, and faltering external demands,” the World Bank said.
It added that the role of investment in China’s growth had also reduced over the past year, indicating that Beijing may be trying to rebalance its economy.
“In 2011, China’s consumption contributed more too gross domestic product (GDP) growth than investments, for the first time since records of GDP began in 1952, Some observers see this as the start of a trend in domestic rebalancing, and associate this with a more permanent growth slowdown in China.”
The Bank has also lowered its growth forecast for the rest of East Asia as China’s export volume slows down. The Bank believes that the entire region could decline by a full 1% to 7.2% this year, a figure that far surpasses the economies of the West. Nations such as Japan, Australia and New Zealand all suffer if China slows down with the country being one of the biggest trade partners for each of them.
“Weaker demand for East Asia’s exports is slowing the regional economy, but compared to other parts of the world, it’s still growing strongly, and thriving domestic demand will enable the region’s economy to bounce back to 7.6% growth next year.” said Pamela Cox, World Bank East Asia and Pacific Regional Vice President.
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