UN Group Gloomy On The World, Upbeat on China

  The Chinese economy is expected to grow 7.8%, but & #160;the global economy is likely to drop more than 2.5%, according to the United Nations Conference on Trade and Development (UNCTAD) in its latest annual report on development.In the Trade and Development Report 2009, released yesterday, the UN agency said expanding domestic demand policies had helped China resist recessionary pressures.In the first half, the Chinese economy grew 7.1%, of which more than 80% was fueled by much of the & #36;US585 billion stimulus-driven government investment. & quot;The Chinese government had made the economic policies properly as China experienced a positive growth in gross domestic product (GDP) in the first half of the year, albeit she was also affected by the global financial crisis, & quot; Supachai Panitchpakdi, secretary-general of the UNCTAD, said yesterday & #160;at a press conference for the & #160;report & #160;held in the & #160;Chinese city of Changchun, which is the capital of Jilin province.According to the UNCTAD report, the impact of higher public spending on infrastructure as well as credit expansion is already visible in China and & #160;the country's proactive counter cyclical policies may attenuate the effects of the economic slump.The Chinese stockmarket surged to early August, but since then has tended to trade sideways as investors wonder if slowing bank lending is an important development, or following the normal policy of a first half surge and second half slowdown.China wants the economy to grow at 8% or better, and there's every expectation it will reach that in the current quarter, according to government economic planners' statements in the past few days.The report predicted the global economy will decrease by more than 2.5 %, with & #160;growth & #160;in & #160;developed nations falling by 4% and output in the transition economies is expected to be down & #160;by over 6%, while & #160;developing countries will see growth of 1.3%, down from the & #160;5.4% rate in 2008.The report forecast GDP is set to fall in several economies in East and Southeast Asia that strongly rely on exports of manufactured goods as global trade continues to be weak.East Asia should be able to maintain a 3.7% growth rate while Southeast Asia may have seen a fall of just under 1%, which would be well under the rate of contraction in developed economies. & quot;While GDP in East and South Asia should continue to grow at 3-4 per cent in 2009, it is expected to fall in West Asia, where several economies have been hurt by tumbling prices of financial assets, real estate and oil, & quot; UNCTAD said in its report overview. & quot;A similar downturn is forecast for many economies in South-East Asia, which rely heavily on exports of manufactures. & quot;The countries that have resisted recessionary forces better than others are those where the domestic market plays a more important - and increasingly growing - role in total demand, such as China, India and Indonesia. & quot;Moreover, the rebound in China in the second quarter of 2009 proves the efficiency of government deficit spending if applied quickly and forcefully. & quot;China released figures Tuesday night showing that car sales in August were agaqin very strong, thanks to the stimulus.Sales of domestically made automobiles in China totaled 1.14 million units in August and topped one million units for the sixth consecutive month.That was up more than 80% on August of 2008.August is usually a flat spot in China's car selling year because its the height of summer when demand is low.The August figure pushed the country's auto sales in the first eight months past 8.33 million units, up nearly 30% on a year ago. The country also produced 8.25 million autos in the same period, up 26.5% year on year.UNCTAD's report said & #160;the global economic outlook was still gloomy and no early recovery from the current recession can be expected. & quot;The economic winter is far from over: tumbling profits in the real economy, previous overinvestment in real estate and rising unemployment will continue to constrain private consumption and investment for the foreseeable future. & quot;Given the weakness in macroeconomic fundamentals, an upturn in financial indicators in the first half of 2009 is more likely to signal a temporary rebound from abnormally low levels of prices of financial assets and commodities following a downward overshooting that was as irrational as the previously bullish exuberance. & quot;They are not a reflection of strengthened macroeconomic fundamentals but of a restored & quot;risk appetite & quot; among financial agents. Consequently, they could be reversed at short notice, depending on the pace of recovery and financial market sentiment. & quot;The report said that global economic growth may turn positive again in 2010, but it is unlikely to exceed 1.6%. & #160;In the report, UNCTAD cited deregulation of financial markets as the main cause of the global financial and economic crisis. It also reiterated the need for more stringent financial regulation as well as the reform of the international monetary and financial system.It warned that deflation - not inflation - is the real danger. & quot;Wage deflation is the imminent and most dangerous threat in many countries today, because governments will find it much more difficult to stabilize a tumbling economy when there is a large-scale fall in wages and consumption. & quot;However, deflation will not cure itself. & quot;Therefore, the most important task is to break the spiral of falling wages, prices and demand as early as possible, and to revive the financial sector's ability to provide credit for productive investment to stimulate real economic growth. & quot;Governments and central banks need to take rapid and strong proactive measures to boost demand and avert the risk of deflation. & quot;At the moment wage deflation is happening in parts of the US and Japan.In Japan wages fell by between 4% and 5% in the year to July, while in the US money wages were up 2.6% over the year to August, but working hours each week continue to fall to levels not seen for 40 years in some cases, meaning an effective cut in incomes. & #160;  

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