China’s Economic Growth Forecast Is Cut

23 May

 The World Bank has cut its economic growth forecast for China to 8.2% (from 8.4%).

The World Bank has urged China to adopt an easier fiscal policy to boost consumption rather than state investment to lift activity. This strategy would require China to lean on fiscal policy instead, to fuel growth. The fear being, a slowing China will drag growth in emerging East Asia to two-year lows this year and also warned Europe’s debt crisis could inflict bigger damage if it worsens.

The view is if governments and central banks act in time to stabilize activity, economies should recover next year. The suggestion is to further loosen monetary and fiscal policies to foster activity, but accepted the ability to maneuver is constrained by inflation risks which could spike assuming growth rebounds.

The European Union accounts for one-third of global import demand in China, and a recession in the Eurozone will take its toll on both China and East Asia. This has a severe likelihood that Asia could suffer from years of sluggish demand in export markets with the United States and Europe. China is expected to be the first to suffer from an export slump before passing the effects on to others in Asia.

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