labels: World economy
World Bank president Zoellick bullish on China, warns against protectionism news
09 June 2009

World Bank president Robert Zoellick said on Monday that though there were no clear indications as to where demand will come from to fuel global recovery, the present conditions did not warrant any additional economic stimulus.

Zoellick said during a question-and-answer session that the Chinese economy would likely throw up some positive surprises, adding that the performance of the Chinese economy would help pull the global economy out of recession.

Zoellick's comments came during a luncheon discussion session at the four-day International Economic Forum of the Americas in Montreal.

Elaborating on the China factor, he said though any forecast in the present environment would be hazardous, China had been able to launch the second-largest stimulus programme after the US and also build up its reserves. China, he said, was not the typical developing country.

According to Chinese leaders, the country would register a growth of 8 per cent this year.

Zoellick, however, cautioned that the possibility of all the credit that the Chinese banks are making available turning sour at a later stage was a risk to the growth of the Chinese economy.

He also pointed out that by and large the Chinese economy had not only been a stabilising force but a force that would pull the global economy out of the downturn.

China with an annual GDP growth rate above 10 per cent has been the fastest-growing major nation for the past quarter of a century, however, according to forecasters, this year the growth of its economy will likely fall to 6.5 per cent with a slight recovery expected in 2010 with a 7.3 per cent gain.

He said it was crucial for Washington and Beijing to ''work out their differences,'' on such concerns that the Chinese government is manipulating its currency.

US policy makers have tried to address Chinese concerns that Washington's budget deficit and lax monetary policy may fuel inflation, undermining US bonds and the dollar.

Zoellick said that over time he expected China to over further in diversification of its reserves, but one needed to also keep in mind that China had been very sensitive about maintaining its exchange rate versus the dollar which meant that the China was buying dollars and therefore holding dollar securities. 
"In this environment, if you had protectionism burst out on one side or the other, or have some doubt put in about financial markets, those are the type of factors that could take a fragile situation and make it worse.'' he said.

Zoellick also defended the US dollar as the global reserve currency of choice even as he welcomed efforts to make the yuan a major international currency.

Meanwhile, economic analysts are pointing to positive signs that a recovery may be in the offing which include a drop in the Japanese bank lending as capital markets recover, a slowing of the pace of decline in OECD economic outlook and a White House forecast of 600,000 jobs created or saved in coming months. 

Japanese bank lending slowed to a seven-month low of 3.1 per cent in May indicating that firms were finding it easier to access funds via capital markets, a thawing from the days the global financial crisis hit the nation. 

In a survey by the Paris-based Organisation for Economic Co-operation and Development (OECD), a grouping of 30 developed nations, says there are strong indications that the downturn may have finally bottomed out in Canada, France, Italy and Britain. 

The report goes on to say that while it was too early to assess whether the development was temporary or a definite turning point, OECD composite leading indicators (CLIs) for April 2009 pointed to a reduced pace of deterioration across most OECD economies. 

The report also says that in Japan, Germany and the US, positive signals were becoming evident, though the leading indicators were still depressed. According to Canadian finance minister Jim Flaherty positive signs in financial markets are giving reasons for cautious optimism that a global economic recovery may not be far behind. 

Meanwhile in the US jobs data for May showed the fewest job losses since September which lifted Japanese share to an eight-month closing high. President Obama's announcement on Monday that 10 major projects funded by a huge stimulus package passed by the Congress in February would be expedited over the next 100 days has also helped lift the negative sentiment. 

In more positive news from across the world, the rate of Japanese corporate bankruptcies fell year-on-year for the first time in 12 months in May. Also, service sector sentiment rose to a one-year high. 

In Britain, one of the worst-hit developed economies, most economists say that the economy has stopped contracting in June and would start growing in the coming months.

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World Bank president Zoellick bullish on China, warns against protectionism