China quake fan inflation rather than cool economy


Bloomberg

BEIJING — China’s strongest earthquake in 58 years is more likely to fan inflation than cool economic growth, economists said. The May 12 quake that hit the Sichuan province affected 14,207 industrial companies, which may have incurred 67 billion yuan (US$9.6 billion) of losses, equal to about 0.5 percent of the country’s 2007 gross domestic product, the Ministry of Industry and Information said Tuesday.

Economists say they aren’t changing their growth forecasts because Sichuan accounts for only 3.3 percent of the economy and any loss in production will be made up for by reconstruction work. A loss of farm output resulting from the quake may fuel inflation running near a 12-year high.

“Economic growth will not be lower but there will be higher inflation pressures,” said Sun Mingchun, a Hong Kong-based economist at Lehman Brothers Holdings Inc. “In terms of monetary policy it is probably giving more reason to loosen than tighten.”