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Economic institutes expect strong rebound in second quarter

(Xinhua)
Updated: 2009-04-28 10:57

China's economy will see a strong recovery in the second quarter as the government stimulus package pays off, according to a survey of leading Chinese economic institutes.

The poll of 27 economic institutes by Capital Week, a weekly magazine specializing in securities and investments, showed that the institutes had raised their growth projections for China's economy in the second quarter by an average of 0.51 percentage points to 7.01 percent.

The average forecast of China's annual gross domestic product (GDP) growth had also been raised to 7.84 percent, compared with 7.77 percent three months ago, according to the survey.

Related readings:  China GDP to grow by 8.3% in 2009, says CASS  Stimulus package doing its job: Chinese Premier  Has the Chinese economy bottomed out?  Economy 'better than expected'

China's quarter-on-quarter GDP growth rose to 1.8 percent in the first quarter this year from 0.2 percent in the previous quarter, which was "almost back to normal", said Zhu Jianfang, chief macro-economist of Citic Securities, one of the surveyed institutes.

Zhu said more favorable policies on living standards, employment and consumption should be implemented, as stimulation of investment might not improve employment, which is seen as one of the toughest tasks of the year.

Several foreign banks also raised their forecasts on China's economy for 2009 in recent reports. Goldman Sachs last week revised its prediction for China's GDP growth this year from 6 percent to 8.3 percent after the release of strong economic data in the first quarter.

Switzerland's largest bank, UBS, adjusted its estimate of China's GDP growth to 7 or 7.5 percent this year from 6.5 percent, while Morgan Stanley raised its forecast to 7 percent from 5.5 percent.

The three measures taken by the Chinese government, including the massive fiscal stimulus, a full medical insurance policy, and the looser financial policy, had begun to bear fruit, according to Goldman Sachs.

"These three measures have set the scene for an acceleration of Chinese domestic demand for the rest of 2009 and 2010, just the right recipe for China, and, critically, the world," said Jim O'Neil, chief economist with Goldman Sachs.

"The next stage of China's development has started and is likely to go on for years," he said.

His view was echoed by Wang Qing, chief economist of Morgan Stanley for greater China, who said the effect of the policy had been better than expected, which had boosted market confidence and prevented declines in private consumption and investment in the first quarter.

Goldman Sachs had also adjusted its prediction on China's consumer price index (CPI) in 2009 from a decreasing of 0.5 percent to 0.3 percent as deflation risks had been reduced.

Domestic institutes, surveyed by Capital Week, held the same opinion. The second-quarter CPI was forecast as an average 0.81 decrease, while the CPI for the full year was estimated to grow by 0.2 percent.

However, opinions began to differ as to the necessity of a second-round stimulus, as some economists believe the current stimulus is enough to bring China out of the crisis, while others think the second round could be a chance to solve the imbalance in China's economy.

Long Yongtu, secretary-general of the Boao Forum for Asia (BFA), said at the BFA Annual Conference 2009 this month that China had seen signs of economic recovery and he thought further economic stimulus was unnecessary.

Shen Lisheng and Li Xuesong, economists with the Chinese Academy of Social Sciences (CASS), believed the government should introduce further stimulus of domestic consumption to offset the losses brought by declining exports.