China Growth Seen Slowing; Citi Boosts Stocks

China's growth could well slow to its weakest pace in almost two decades next year, the World Bank said, the latest grim prognosis for a global economy buckling despite the concerted efforts of policymakers.

What started more than a year ago as a meltdown in the U.S. market for high-risk mortgages has engulfed the world, freezing access to credit, sparking bank collapses and requiring the financial bailout of entire countries.

Qantas Airways, motorcycle maker Honda Motor and camera company Canon added their voices to a chorus of firms warning of the effects of the slowdown.

But the U.S. government's weekend rescue of No.2 bank Citigroup [C  5.95    2.18  (+57.82%)   ]provided some temporary respite for battered equity markets, sending Asian shares up 3 percent on Tuesday.

A 20 billion pound plan to kickstart the British economy announced on Monday and hopes for an aggressive stimulus package from the incoming administration in Washington also provided some relief.

U.S. President-elect Barack Obama said his newly appointed economic team would act "swiftly and boldly" to fight the downturn that has sent the world's largest economy into its worst tailspin in decades.

"These extraordinary stresses on our financial system require extraordinary policy responses," Obama said. 

China this month unveiled a 4 trillion yuan ($586 billion) spending package to help prop up its economy, but growth would still likely slow to around 7.5 percent in 2009, from 9.4 percent this year, the World Bank said in a report.

That would be China's slowest growth since 1990 and below a pace of 8 percent that conventional wisdom suggests is needed to absorb newcomers to the workforce.

But World Bank country director David Dollar said at the forecast rate of growth, China would continue to create enough jobs and the labor market would remain "pretty tight".

More than half the forecast growth next year would come from Beijing's stimulus package, while net exports, by contrast, would lop 1 percentage point off growth as overseas demand for Chinese goods slows, the bank said.

Damage Control

Evidence continued to mount about the parlous state of the global economy elsewhere too.

In Japan, which suffered years of economically damaging deflation, the cost of business services fell the most in five years in October.

The Organisation for Economic Cooperation and Development is expected to report recession in the United States, Japan and the euro zone would drag emerging economies into a punishing slowdown as access to credit remains tight and consumer confidence evaporates.

U.S. gross domestic product data is likely to show economic activity shrank by 0.5 percent in the third-quarter, more than initially estimated.

A further deterioration is expected this quarter, putting the world's largest economy in recession.

"Economic conditions are rapidly changing in the current quarter, largely as a result of the financial market dislocations and faltering confidence among both businesses and consumers," said Joseph Lavorgna, chief U.S. economist at Deutsche Bank Securities in New York.
     
Demand Slows

Companies have also been feeling the pinch.

Australia's Qantas said demand had slowed, forcing it to cut its 2009 profit forecast and further reduce capacity.

"We are in unpredictable times and the international business market, in particular, has slowed," Chief Executive Geoff Dixon said in a statement.

The president of Japan's Canon warned in an interview with Reuters that the global market for digital cameras may contract next year as consumer demand shrinks.

And Honda, the world's top motorcycle maker, said sales could stop growing in 2009 as the credit crisis catches up with emerging markets.

But relief that Citigroup would not be allowed to go the same way as Lehman Brothers and Bear Stearns encouraged investors to buy shares beaten to multi-year lows last week.

Shares in Citigroup surged almost 60 percent on Monday after the U.S. government moved to rescue it with a $20 billion capital injection and a promise to shoulder hundreds of billions in risky assets.

The U.S. S&P 500 jumped 6.5 percent, taking its gains since Friday to 13.2 percent -- its biggest two-day rally since the days following the 1987 stock market crash.

In Japan, the Nikkei 225 Average [JP;N225  8323.93    413.1397  (+5.22%)   ] closed over 5 percent higher, while MSCI's index of other Asia-Pacific stocks added 3 percent, having sunk to a five-year low last week.

"Expectations for the new U.S. administration were a major factor while the Citi bailout news also helped. Gestures shown by Obama and his team this week were aggressive and gave assurance to investors," said Kim June-kie, a market analyst at SK Securities in Seoul.