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Chinese economy set to bottom by the middle of the year

In an environment of widespread gloom, the World Bank says there are signs of recovery in China, with the economy set to bottom out by mid-2009.

In a half-yearly review of East Asia issued today, the World Bank says the huge fiscal stimulus package beginning this year will drive the stabilisation and eventual recovery of China.

However, with the country still heavily reliant on exports, the sustainability of its rebound is tied to the fortunes of developing economies.

Vikram Nehru, the chief economist for the region, says: “There is no doubt that the East Asia and Pacific region is confronting very difficult times. The countries that are able to tackle short-term challenges while staying focused on longer-term priorities will likely emerge better placed after the crisis to resume growth.”

Meanwhile the Philippines has become the latest victim of the economic crisis as the global slowdown spreads throughout East Asia, the World Bank has warned.

Elsewhere in the review, Eric Le Borgne, a senior economist, says falling global demand has had a knock-on effect on the country’s private sector, despite its strong financial fundamentals going into the crisis.

“While the country was relatively sheltered from the initial global financial turbulence, it was nonetheless affected. Now, with aggregate demand falling precipitously, sharp declines in exports and industrial production are triggering factory closures, impacting labour markets and poverty,” Le Borgne says.

The authorities were quick to respond with fiscal stimulus measures and social programs to support those affected. However because of the projected output gap, this will mitigate rather than overcome the contraction in the private sector, he adds.

The Philippines was well placed to withstand the global economic turmoil because of the lessons learned from the 1997 Asian crisis. Since then it has bolstered its foreign exchange reserves and reduced its debt, but it was not enough to stave off the impact of a slowing production sector. Projected real GDP growth for 2009 has been revised to 1.9% and hopes for a strong rebound in 2010 have diminished, Le Borgne says.

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