Beijing: The World Bank has said that it expects China’s economic growth to fall to single digits in 2008 for the first time in six years, while inflation would be higher than previously forecast.
“China’s economic growth has moderated to a more sustainable pace,” the bank said in its quarterly report on China, adding it expected 9.8% expansion this year, down from 11.9% in 2007.
The moderation was in line with weaker global economic performance, but China’s growth will still be supported by strong international competitiveness and a robust domestic economy, it said.
Meanwhile, the forecast for inflation this year was raised to 7% from 4.6%, less than three months ago, amid spiralling commodity prices.
China’s consumer price index rose 4.8% in 2007, fuelled mainly by food prices. But inflation was at 7.7% last month, lingering at close to 12-year highs.
Inflation of 5.3% predicted
“Inflation is expected to come down only gradually. There are significant risks attached to inflation projections, particularly from higher international commodity and energy prices,” the report said.
The bank predicted inflation of 5.3% next year. The report argued that there was no need for policy makers to ease relatively tight monetary policy, given China had to cut its still large trade surplus and contain inflation expectations.
The World Bank urged the country to continue to strengthen its currency, focusing on its value against not only the U.S. dollar but also the currencies of other major trading partners.
“China’s largest trading partner now is the eurozone. So we also suggest it makes sense to look at the trade-weighted exchange rate,” David Dollar, the bank’s country director for China, told reporters. He said so far there had been only very modest appreciation in China’s trade-weighted exchange rate -- about 3% annually in recent years.
Liberalize state-controlled oil prices
The bank also called on China to gradually liberalize its state-controlled oil prices towards market rates to change people’s consumption pattern and improve energy efficiency.
“Fuel prices in China don’t reflect the scarcity of energy and that inhibits the rebalancing of the economy,” said the bank’s senior economist Louis Kuijs. “It inhibits efficiency improvements, it inhibits the energy security that the China government is striving for.”