World Bank Predicts Solid Growth for China Despite Real Estate Sector, European Debt Crisis

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Jun. 18 – The outlook for China’s economy is strong, although efforts to cool the real estate sector and fallout from Europe’s debt crisis will slightly dampen growth according to the World Bank’s quarterly economic update released today.

“We project GDP growth of 9.5 percent for 2010 and 8.5 percent for 2011, with risks both ways,” said Ardo Hansson, World Bank lead economist for China in a press release for the update.

“Growth should be less investment-driven this year and benefit from more favorable external trade, while consumption in likely to remain supported by a strong labor market,” he added.

After the impressive growth of government-led investment in 2009, the report notes that real estate investment will contribute to growth in 2010, although risks related to high housing prices will subside thanks to property tightening measures.

Weak demand from foreign markets, particularly Europe, will mean that export volumes will slow for the rest of the year after the first quarter spike due to global restocking. Along with higher imports, the update predicts that China’s trade surplus will ease down in 2010.

For a longer outlook, the report warms that trend growth will fall in the next 10 years, although it will perform at a respectable rate.

“The expected deceleration of potential growth […] places a premium on policies that can increase sustained productivity growth, including via more reallocation of labor, enhanced human capital, and innovation,” said the report.

“Further reforms are needed to ensure economic growth remains sustainable socially and with regard to energy and the environment. Fiscal policy reforms in several areas are key in this effort.”