Interpac Business and Migration Solutions Melbourne Australia

(June.9)

The economy will maintain its high growth levels and the government still has plenty of room to further tighten monetary policy, World Bank economists said on Wednesday.

The economy is predicted to grow by 9.3 percent this year, before slowing to 8.7 percent in 2012 and 8.8 percent in 2013, the World Bank forecast in its twice-yearly report, Global Economic Prospects, released on Wednesday.

"What we're seeing now is a moderate slowdown," said Ardo Hansson, lead World Bank economist in China.

"A moderation in high growth is something that could be welcome."

He said the across-the-board slowdown indicates policies the government had adopted are beginning to work.

"We see a lot of room for further tightening", and interest rates are still 1 percentage point below the level before the crisis, and if inflation is taken into account there is scope for a further hike, Hansson said.

The government should use interest rates more than administrative measures to handle economic growth in the long term, he said.

A recent index, on factory output, raised concerns over a possible hard landing for the economy.

The purchasing managers' index, a key gauge of manufacturing activity, hit a nine-month low of 52 in May. Another index due to be released, the consumer price index (CPI), an indicator of inflation, was forecast to reach a 34 month-high of 5.5 percent year-on-year for the same month.

To soak up liquidity and curb inflation, the central bank has raised interest rates four times since October, and has also increased the reserve requirement ratio (the amount lenders must set aside) for banks eight times over the same period to a record 21 percent for major lenders.

But Hansson said the biggest risk facing the economy is not inflation, but the property market, which has been rising despite the government's cooling policies.

Hans Timmer, director of development prospects at the World Bank, said decision-makers should focus more on signs that the economy is hitting its growth limits, and indications of this are apparent not only in the inflation rate, but in the real estate market.