SHANGHAI, Jun. 5 -- China can increase social and infrastructure spending to support its economic expansion should the global economy slow "more than expected," the Organization for Economic Cooperation and Development said.
China's gross domestic product growth "is expected to slacken further over the remainder of 2008 and in 2009" on weaker export gains, the OECD said in a semi-annual economic outlook yesterday. The economy grew 10.6 percent in the first quarter, down from the 11.9 percent pace for all of 2007.
"The fiscal balance is healthy and the government is well placed to raise social spending and infrastructure investment," the OECD said. "Government revenue increased by 32 percent in 2007."
The OECD cut its estimates for China's economic growth from forecasts made in December. It now expects expansions of 10 percent in 2008 and 9.5 percent in 2009. The previous estimates were 10.7 percent and 10.1 percent respectively, Bloomberg News said.
"The Chinese economy is slowing to a more sustainable pace and there are early indications that the pattern of growth is beginning to rebalance away from net exports to domestic demand," the report pointed out.
Deutsche Bank this week raised its forecast for China's growth this year, citing the boost to spending from earthquake reconstruction work. It expects a 10.7-percent expansion.
Export competitiveness "will continue to erode over 2008 and 2009, reflecting wage and price inflation," the OECD said. Overseas shipments rose 22 percent in the first four months from a year earlier, down from the 26-percent gain in all of 2007. The trade surplus shrank 8 percent.
Inflation surged to 8.5 percent in April, close to the highest level in nearly 12 years.
To cool price gains, China has raised the proportion of deposits that lenders are required to set aside as reserves four times this year and allowed the yuan to gain about 5 percent versus the US dollar.
(Edited by CBI China)