Beijing Olympics: World Bank cuts China's growth forecast

The World Bank Wednesday slashed China's economic growth forecast to 6.5 percent in 2009, well below the level the nation says it needs to keep enough people at work and to avoid social unrest.

The Washington-based development lender based its estimate for the world's third-largest economy -- down sharply from a 7.5 percent forecast made in November -- on a dramatic worsening of the global outlook in recent months.

"China?s economy cannot escape the impact of the global weakness," it said in its quarterly update on the Chinese economy.

"Since end-November 2008... developments in and the outlook for the global economy have been worse than expected."

The World Bank's forecast comes less than a week after Chinese Premier Wen Jiabao insisted that the economy would be able to achieve eight-percent growth "with considerable effort."

Achieving this target is of particular importance now, following an official admission that 20 million migrant workers have lost their jobs due to the slowdown, particularly in export-dependent industries.

An authoritative weekly magazine warned early this year that "pent-up discontent could easily burst out... and spark mass conflicts" due to economic pressures.

The World Bank underscored that, while China's economic growth outpaced that of most other countries, growth at an annual rate of 6.5 percent was "significantly lower than potential growth."

Potential growth is the rate that a country could achieve if all its means of production were being utilised.

To make up for the slack, the government rolled out an unprecedented four-trillion-yuan 580-billion-dollar stimulus package in November.

This, along with other spending, is likely to provide the main growth impetus this year, the World Bank said Wednesday.

"About three quarters of the 6.5 percent in our scenario come from government-influenced spending," Louis Kuijs, the report?s main author, told a briefing in Beijing.

"Growth in China would have been weaker and more in line with that of other countries if it hadn't been for this government response that is possible in this economy."

Commenting on the World Bank's forecast, economists said they believed China would have the fiscal means to maintain growth.

"There is little restriction on the capital supply for growth. The government has abundant cash if it is willing to incur debt," said Chen Xingdong, a Beijing-based economist with BNP Paribas.

The World Bank said that China's banks had "been largely unscathed" in the global financial turmoil that accelerated after the collapse of US investment bank Lehman Brothers in September.

"The economy still has plenty of space to implement forceful stimulus measures," said the development lender.

"That is one of the reasons to not increase the fiscal stimulus very much over and above that has already been done."

Conservatory & Botanical Gardens. AP Photo/Las Vegas News Bureau, Brian Jones