BOFIT Forecast for China 2010-2012

China's economy recovered rapidly from the international financial crisis with strong sup-port from a large stimulus package. A decline in exports was offset mainly by an increase in investment by the government and state-owned enterprises. In the early part of this year, GDP growth has been faster than expected, and the forecast for 2010 has been raised to 10%. The growth forecast for the next few years has not been changed: real GDP should increase 9% in 2011 and 8% in 2012. Forecast uncertainty is in connection with the real estate sector. A faster-than-expected decline in house prices, for example, would reduce investment, downgrade banks' loan portfolios, and squeeze local government revenues. Local governments' indebtedness has been reevaluated and they are now seen to be in worse financial condition than anticipated, and this could further restrain public investment and consumption.