Asia-Pacific

China's economy may surpass Japan: report

(Agencies)
Updated: 2010-01-25 06:40

FRANKFURT: China could overtake Japan as the world's second-largest economy in 2010, one year before Goldman Sachs (GS.N) Chief Economist Jim O'Neill had previously expected.

"I believe it can happen already earlier (than 2011). Maybe already in the middle of this year," O'Neill told German Sunday newspaper Welt am Sonntag, who forecast that China's economy would triple by 2020 due to 8.3 percent annual growth. "The big story in the post-crisis global economy is: China imports!"

This nevertheless means that the problems in Europe will grow, the Goldman economist warned.

"Germany will continue to export too much and consume too little, and will push the ailing eurozone states against the wall with its competitiveness," he explained.

O'Neill expects the euro weakness to continue, reaching $1.35 by the end of 2010, despite his prediction that the US Federal Reserve would not raise interest rates for the next two years.

He rejected fears, however, that an increase in Germany's debt would further harm confidence in the euro-zone, already damaged due to massive fiscal problems in Greece.

"The European stability pact is no longer timely and it deserves to be abolished," O'Neill said, referring to proscribed levels for fiscal debt.

Some economists believe capping budget deficits at 3 percent of GDP and total public debt at 60 percent of GDP acts more as a straitjacket for the economy rather than as an anchor for price stability.