World Bank Cuts China's 2009 Growth Forecast

Wednesday was the second time in four months the Washington-based World Bank has cut its China growth forecast for 2009, following a reduction in November from 9.2 percent to 7.5 percent. Growth at 6.5 percent would be the weakest since 1990's 3.8 percent and below the 7.6 percent reported in 1999.

Construction workers walk on their way to their working site in Beijing, China, Wednesday, March 18,...

Construction workers walk on their way to their working site in Beijing, China, Wednesday, March 18, 2009. The World Bank cut its forecast of China's 2009 growth from 7.5 percent to 6.5 percent on Wednesday due to plunging exports but expressed confidence in Beijing's ability to keep the world's third-largest economy expanding amid global turmoil. (AP Photo/Andy Wong)

(AP)

"We don't foresee any significant recovery in China's growth until the world economy recovers," Kuijs said. Dollar said the global economy is expected to shrink by 1.5 percent this year, with no recovery until late in the year or in 2010.

"We should eventually see some recovery in exports later in the year, but on the whole the prospects remain pretty somber," Kuijs said.

Some economists say China must grow by a minimum of 8 percent annually to produce enough jobs for millions of new workers each year. The World Bank has said, however, that there is no specific growth rate required to keep employment stable.

Communist leaders worry that job losses could fuel unrest and are promising to spend to create employment. They are promising more spending on health, education and other social programs to reduce the financial burden on Chinese families and encourage them to divert money to spending on consumer goods.

Kuijs said that if Beijing decides it needs another stimulus, it might be more effective if it focuses on social programs, job creation and household consumption, instead of more construction. He said that also might save Beijing money.

"There are limits to how much money you can spend usefully on investment-oriented spending," he said. "It may make just as much sense not to go for the second or third general fiscal stimulus but to do more in these areas such as using the social safety net to deal with the negative consequences of this crisis on people's livelihood and unemployment."

Consumer prices fell in February, raising the risk of deflation, but Kuijs said that was not a serious threat yet and Chinese policymakers have tools to fight it.