Estimate of China's Growth in 2009 Cut by World Bank

The 25.7 percent drop in exports has prompted The World Bank to cut its estimate of China’s 2009 growth from 7.5 percent to 6.5 percent. The cut on Wednesday was the second time in the last four months the World Bank has reduced its estimate of China’s growth. The estimate before November was 9.2 percent , but was reduced in that month to 7.5 percent The current estimate of 6.5 percent is the weakest since 1990, when the economy expanded by only 3.8 percent.

The fall in exports has continued in China over the last six months, as the world wide recession extends its reach. The report did not foresee a significant recovery for China until the world economy recovers, and most economists do not see this occurring until the last quarter of 2009 or even later.

Although Mr. Wen Jiabao, China’s Premier, said only last week that China would reach its 8 percent goal for growth this year, he is almost the only one who is holding to that outlook. Most private economists see a more dismal picture for China for the rest of this year, with their estimates ranging from 5 percent on the low end to 8 percent of Mr. Wen.

The World Bank did not factor into their estimate that Mr. Wen has stated that if their 8 percent target for growth begins to looks uncertain, he is prepared to increase stimulus spending enough to bring it up to target.  It is likely that this possibility will be discussed at the G-20 meeting in London on April 2nd, as many of the members have endorsed a coordinated effort of stimulus spending in order to increase world trade.

The Chinese stock market has reflected the gloomier outlook for their economy. The chart below shows the exchange traded fund, FXI, which is Barclays’ Capital ETF that follows the FTSE/Xinhua China 25 index. This index has dropped 50 percent over the last year.

The index does appear to have stabilized in the $20 to $30 range since last November, however. It closed at $27.48 on Tuesday.