"The PRC will emerge from the crisis in better shape than it was before if it can rise to the challenge of rebalancing its economy," says Jong-Wha Lee, ADB's Acting Chief Economist. "The country is on a sound financial footing and has the necessary tools at its disposal to achieve this goal."
In the short term, ADO 2009 forecasts that inflation will average less than 1% in 2009, providing the government with scope for more accommodative monetary policies to bolster the economy.
The PRC economy is likely to rebound in 2010, when investment programs unveiled in the government's large stimulus packages are implemented and the global economy starts to pick up.
Private sector investment, a key driver of growth for the PRC in recent years, is expected to slow and the property market, which in 2008 saw its first decline in three years, will remain soft, the ADO 2009 says.
In contrast, private consumption growth is likely to remain buoyant at around 8–9% this year.
"The low level of inflation will benefit consumption, so will the subsidy for people in rural areas to buy household appliances and some of the stimulus package measures," says Dr. Lee.
The current account surplus is forecast to come down slightly from the record high of over 10% of GDP in the past two years, and capital inflows are likely to remain suppressed by the global financial crisis.
The report warns that increasing levels of unemployment, largely as a result of the downturn in the manufacturing sector, is the PRC's most pressing issue. It says that investment projects in the stimulus packages will generate jobs, but not enough to absorb the growing labor surplus. ADO 2009 stresses that it will be important for the government to strengthen social protection programs, particularly for migrant workers who lose their jobs and return to the countryside, where there is little work.
