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Economy stable despite quake raising inflation risks

(Agencies)
Updated: 2008-06-03 15:41

China's soaring economy is beginning to stabilize, although surging demand for some commodities following last month's disastrous earthquake will add to inflationary pressures, central bank researchers said in a report published Tuesday.

While the May 12 earthquake killed 69,019 people and caused massive damage in Sichuan and surrounding provinces, the general trend toward more stable economic growth remains unchanged, said the report by research unit of the People's Bank of China.

It noted that the value of economic output in the region affected by the disaster is only 0.25 percent of the national total.

But reconstruction is fueling higher demand for cement, steel and other materials and will likely add to inflationary pressures, it said.

"Inflationary pressures remain the biggest risk in the economy. Curbing price rises remains the government's key task," said the report, published in the China Securities Journal.

China's inflation rate has hovered near 12-year highs in recent months, with inflation in April at 8.5 percent.

According to the Ministry of Commerce, food prices fell 0.7 percent last week, the eighth straight week of declines. Despite such data and recent forecasts suggesting the rise in the consumer price index in May could be below 8 percent, the central bank's report noted a continued need for China to rein in investment and prevent a rebound in excess lending.

Buoyed by strong growth in domestic demand, China's economy grew 10.6 percent in the first quarter from a year earlier, despite the global credit crunch resulting from the US mortgage lending crisis and moderation in demand for exports.

In a separate report, Fitch Ratings agency said it expects China's economy to grow a solid 10 percent in 2008, with inflation for the full year at between 6 percent to 7 percent.