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Mid-year rebound forecast

By Wang Bo (China Daily)
Updated: 2009-04-08 08:14

The government's $586-billion stimulus package may be strong enough to drive the economy to an early rebound in the middle of this year, the World Bank said Tuesday, adding a caveat that a full recovery ultimately depends on developments in the advanced economies.

Related readings: China economy has bottomed: central bank adviser Japan to double stimulus spending to 4% of GDP G-20 agrees on huge stimulus, tough regulations

"Fueled largely by the huge economic stimulus package, a recovery in China is likely to begin this year and take full hold in 2010, contributing to the region's stabilization," the bank said in its latest semi-annual report on the economic health of East Asia and the Pacific region.

"A wide range of economic indicators in China are improving," indicating that a recovery is underway, said Vikram Nehru, the World Bank's chief economist for the East Asia and Pacific region.

The Purchasing Managers Index of the manufacturing sector, a key indicator of economic health, rose for four consecutive months to reach 52.4 in March. It was the first time it rebounded above 50 since July 2008, indicating a "stabilizing and recovering economy", said Ma Jiantang, head of the National Bureau of Statistics at the release of the figures.

Urban fixed asset investment surged by 26.5 percent in the first two months of this year, and new yuan loans reached a record high of about 2.7 trillion yuan during the same period, pumping in massive liquidity to prop up the slowing economy.

A recent survey conducted in 19 countries showed that Chinese are more confident of their economy than in many other countries. Nearly one in two Chinese respondents believed the country's economy was getting stronger, while in Japan and the UK, more than four in five said their economies were getting worse.

"We are seeing these encouraging signs (in China) and we do think the stimulus policies will allow China to continue to see some growth in a very weak world economy," Louis Kuijs, senior economist with the World Bank, said.

But he warned that China's growth could not return to the rate it used to be without a recovery in the global economy.

The Chinese economy is so closely linked to the world economy that it is impossible to expect the stimulus package alone to boost growth back to above 10 percent, he said.

China will expand 6.5 percent this year, the World Bank predicted last month, down from an earlier forecast of 7.5 percent and compared with 9 percent last year, as export demand weakens in the United States, Europe and Japan, its key trading partners.

Li Jianwei, senior economist with the Development Research Center affiliated to the State Council, agreed that the economy could pick up in the second or third quarter as the effect of the massive fiscal spending begins to show, but stressed it was too early to say the country is on the way to an overall recovery.

"Given the gloomy outlook for the developed economies, such as the United States and Europe, China's economy is still under huge downward pressure in the medium term," he said.