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The number of Americans signing contracts to buy previously owned homes rose for a fourth consecutive month in May, a sign the four-year slump in housing sales may be bottoming out.

The 0.1 percent gain in the index of signed purchase agreements, or pending home resales, followed a 7.1 percent rise the prior month that was bigger than previously estimated, the National Association of Realtors said today in Washington. The May reading was up 4.6 percent from the same month a year earlier.

Collapsing home prices, historically low mortgage rates and tax incentives are making housing more affordable for Americans, helping to stabilize sales that have fallen since September 2005. Still, with unemployment forecast to reach 10 percent this year, home purchases may languish at low levels for months before a recovery emerges.

“We’re starting to see sales stabilizing,” Michael Gregory, a senior economist at BMO Capital Markets in Toronto, said before the report. “We’ve probably reached bottom or are close to that.”

Economists forecast the index would remain unchanged in May after a previously reported 6.7 percent gain the prior month, according to the median of 36 projections in a Bloomberg News survey. Estimates ranged from a 3 percent drop to an increase of 7 percent.

Pending resales are considered a leading indicator because they track contract signings. The National Association of Realtors’ existing-home sales report tallies closings, which typically occur a month or two later. The group, whose pending data goes back to January 2001, started publishing the index in March 2005.

Northeast, West

Two of four regions saw an increase in pending sales, today’s report showed, led by a 3.1 percent month-on-month rise in the Northeast and a 2.2 percent gain in the West. Pending resales fell 1.7 percent in the South and 1.3 percent in the Midwest.

The agents’ association reported last week that home resales increased 2.4 percent in May, a second consecutive gain that reinforced the case that the slump in home sales may level out this year payday loans. The median price dropped 17 percent from a year earlier, the third-biggest decline on record.

Rising foreclosures have pulled down median home prices by nearly a third from their peak in mid-2006, boosting demand. Foreclosure filings, including default and auction notices as well as property seizures, climbed 18 percent in May from a year earlier, according to Irvine, California-based RealtyTrac Inc. Distressed sales accounted for about 33 percent of existing homes sold in May, according to the agents’ association on June 23.

Fed’s Efforts

Federal Reserve purchases of Treasuries and mortgage securities also brought mortgage rates down to 4.78 percent in early April, the lowest since records began in 1971. They have since risen to 5.42 percent in the week ended June 25, still low levels by historic standards, according to Freddie Mac, the biggest buyer of mortgage securities.

In addition, the Obama administration’s economic stimulus plan provided an $8,000 tax credit for first-time home buyers for purchases completed before Dec. 1.

Still, tight credit and job losses exceeding 6 million since the recession began in December 2007 have turned most Americans cautious about making big-ticket purchases.

Homebuilders see little relief in sight. Sales of new homes will remain little changed in coming months because of low consumer confidence and the difficulty would-be buyers have getting loans, Pulte Homes Inc. Chief Executive Officer Richard Dugas said at an investor conference June 23.

“Buyers are unwilling and unable to take on new mortgages,” Dugas said at conference in Boston. “Despite the record fall in prices and the tremendous deal that consumers get relative to the 30-year mortgage rates where they are today, we’re still having difficulty convincing people to get into the market.”

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Vietnam, the first country in Asia to release second-quarter growth numbers, will probably say its economic expansion accelerated in the period, foreshadowing likely recoveries in the rest of the region.

The economy grew 3.9 percent in the first half from a year earlier, according to the Ministry of Planning & Investment. That implies second-quarter growth of 4.5 percent, from 3.1 percent in the first three months, according to Australia & New Zealand Banking Group. The General Statistics Office, which compiles official economic data, is expected to release gross domestic product figures this week.

Vietnam’s economy is benefiting from an increase in construction as a government loan subsidy program spur credit growth. Other economies in the region, including Japan and Singapore, are forecast to report better second-quarter figures as some $2.2 trillion in stimulus worldwide help stabilize overseas sales for companies from Japan’s Nissan Motor Co. to South Korea’s Kia Motors Corp.

“The worst has likely passed for Vietnam as well as the rest of the region,” said Paul Gruenwald, chief economist for Asia at ANZ in Singapore. “The focus now should be on assessing the strength of the recovery and how long it will take to return to potential growth. A full recovery requires a resumption of foreign demand.”

OECD Forecast

The Organization for Economic Cooperation and Development on June 24 raised its forecast for its 30 member nations for the first time in two years as the global recession shows signs of abating. The International Monetary Fund last week boosted its outlook for Australia for this year and next.

Japan’s economy will expand at an annual 2.3 percent pace in the second quarter, according to a Bloomberg News survey, after contracting a record 14.2 percent in the first. South Korea’s finance ministry last week forecast GDP will increase almost 2 percent in the second quarter from the previous three months, when it expanded 0.1 percent.

The MSCI Asia Pacific Index of the region’s stocks climbed 47 percent since March 9, when it fell to the lowest in more than five years, as the outlook for corporate earnings improved. Vietnam’s benchmark VN Index has gained 60 percent this quarter. It lost 2.6 percent today.

Worst Over

“Most countries have passed the depths of the crisis and those with strong domestic growth drivers will benefit more and recover faster,” said Alvin Liew, an economist at Standard Chartered Bank in Singapore unsecured personal loans. “The economy is well supported by pro-growth government policies.”

Vietnam, Indonesia, China and India, where growth remained positive amid the global slowdown, are examples of economies that have shown more resilience than other export-dependent nations because of domestic consumption, Liew said.

“The pickup in growth in the second quarter in Vietnam was domestic based” helped by the fuels, transport and garment industries, said Gruenwald of ANZ. “Output from the state sector seems to be growing faster than the rest of the economy as well. GDP growth should rise during the rest of 2009 as the fiscal stimulus plan continues.”

Vietnam’s government is aiming for 5 percent growth this year, down from a previous target of 6.5 percent. The economy grew 6.2 percent last year, the least since 1999.

Slowest Growth

Growth in the first quarter was the slowest pace on record as overseas companies trimmed investment plans and manufacturing weakened amid the worst global recession since the Great Depression. Pledges of foreign investment into Vietnam and planned capital increases for existing projects fell 77 percent in the first half from a year earlier.

Fitch Ratings downgraded Vietnam’s long-term, local- currency credit rating today by one grade to BB-, citing a “steady deterioration” in the country’s finances. The nation relies too much on oil-related revenue and an economic recovery won’t stop the fiscal deficit from ballooning, Fitch said.

The State Bank of Vietnam said yesterday it will keep interest rates unchanged this year to support economic growth. It is also focused on keeping consumer price gains under control after the National Assembly this month set an inflation ceiling of 10 percent for 2009.

Credit Suisse Group AG last week raised its growth forecast for Vietnam, predicting the economy will expand 4 percent this year, from an earlier estimate of 2 percent.

“Poor foreign direct investment and exports will weigh on fixed investment this year, but we are revising up our 2009 GDP forecast on signs of early global demand stabilization,” said Joseph Lau, a Hong Kong-based economist at Credit Suisse Group AG. Last quarter, the economy “probably hit its low point, but growth recovery will likely be relatively moderate.”

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France should restrain its budget deficit as its economy returns to “sluggish” growth next year, the International Monetary Fund said.

“The economic contraction is expected to slow in the remainder of 2009, followed by a sluggish return to growth beginning in early 2010,” the Washington-based agency said in a report released late yesterday. “A return to medium-term sustainability will now be needed” after government spending helped cushion the recession.

Europe’s third-largest economy has contracted for four straight quarters, pushing the jobless rate to more than a two- year high. President Nicolas Sarkozy has introduced about 30 billion euros ($42.2 billion) in tax cuts and spending that aim to pull the economy out of the deepest slump since World War II, inflating the deficit and debt to records in the process.

France’s budget deficit may widen to between 7 percent and 7.5 percent of gross domestic product in 2009 and “probably” will reach the same range in 2010 as the government lifts spending and the recession erodes revenue, Budget Minister Eric Woerth said on June 21.

“With an already high public debt, the cost of the recession and the fiscal stimulus are set to significantly worsen the fiscal outlook over the medium term,” the IMF said in the report compare carinsurance. “Decisive implementation of a clear consolidation strategy at all levels of government needs to be anchored in the 2010 budget.”

European governments are under pressure to turn their attention from fighting the recession to smoothing a recovery as investors worry more than $2 trillion in stimulus programs will spark inflation if left unchecked.

Inflation Rebound

“Annual consumer price inflation will dip below zero during the summer months” in France, the IMF said, “but given entrenched wage and price rigidities, inflation is expected to rebound somewhat in 2010.”

The IMF in its April World Economic Outlook projected 0.4 percent growth for the French economy next year, following a contraction of 3 percent in 2009.

The fund yesterday noted that risks to the economic outlook “remain tilted to the downside.” The risks include a further decline in the European Union economy, which buys two-thirds of French exports, and a further increase in unemployment that could sap consumer spending.

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The U.S. economy shrank at an annual pace of 5.5% in the first quarter, the government said Thursday, a slower pace of decline than previously reported but still the second largest quarterly drop in 27 years.

Economists had expected a 5.7% drop, according to a consensus estimate from Briefing.com.

The first quarter of 2009 marked the third quarter in a row that the economy contracted. It was the second worst drop in the measure since the early 1980s — behind only the fourth quarter of 2008, when GDP plunged at an annual pace of 6.3%.

The government initially reported in April that gross domestic product — the broadest measure of the nation’s economic activity — fell at an annual rate of 6.1% in the first quarter. In its first revision, the government said that GDP declined at an annual pace of 5.7%.

Each quarter, the government revises the GDP twice. Thursday’s report marked the final revision.

Inventories, imports: The decline in GDP was less severe than initially reported because of a downward revision to imports and an upward revision to inventory investments, the Commerce Department said. If the economy is spending less on another country’s goods and spending more to build its own stockpiles, then productivity is higher, working to pump up the GDP.

Imports of goods and services decreased 36.4% in the first quarter, a sharper decline than the 34.1% drop in imports that was previously reported.

Business inventories fell by $87.1 billion in the first quarter, a less severe drop off than the $91.4 billion decrease reported in the first revision. As a result, the subtraction to the annual rate of GDP growth was 2 payday loan.2 percentage points, rather than 2.34. Businesses cut their inventory levels in the face of falling demand.

The drawdown in inventories will prove to be a catalyst for production in coming quarters, said John Silvia, chief economist at Wachovia. "The key going forward is that we have cleared out a lot of extra inventories."

Exports, personal spending: A downward revision to exports and personal consumption counteracted the stronger numbers on imports and inventory investments, according to the government report.

Exports plunged 30.6% in the first quarter, a more severe drop than the 28.7% drop reported in the previous revision.

The growth in consumer spending was revised down to 1.4% from the previously reported 1.5%. But the fact that the percentage remained positive was "reassuring to everyone," according to Silvia.

Looking forward: Silvia said he still expected a decline in second-quarter GDP, although it will be less negative than the first quarterm saying production shutdowns in the auto industry have been too severe to allow the economy to rebound.

"I think the third quarter that will be the start of the economic recovery, not the second quarter," he said.

One hint of future growth in the first-quarter report was corporate profits, which were up 1.4% after being down 10.7% in the fourth quarter of last year.

"Companies that make money tend to hire workers," said Silvia.  

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Saks Fifth Avenue is cutting orders 20 percent after posting losses in the last four quarters. Kia Harris says some customers at the Washington shoe store where she works are buying one pair rather than three.

In the recession following a borrowing binge that sent consumer debt to the highest level ever, Americans are shutting their wallets and building their nest eggs at the fastest pace in 14 years.

While the trend will put the country’s finances in better balance and reduce its dependence on Chinese investment, it may also restrain economic growth in 2010 and beyond, said Lyle Gramley, a senior economic adviser with New York-based Soleil Securities Corp. and a former Federal Reserve governor.

“There’s been a fundamental change in people’s behavior,” he said. “It will affect the economy for years.”

Government data today may show that the household savings rate rose to more than 7 percent in May from 5.7 percent in April, as stimulus checks for seniors pushed up income, said Stephen Stanley, chief U.S. economist at RBS Securities Inc. in Stamford, Connecticut. The rate in April last year was zero.

Americans’ newfound frugality is pinching airlines such as Chicago-based UAL Corp., which is cutting staff amid dwindling demand for leisure travel. Donations to charities dropped last year for the first time since 1987, and they’re in danger of declining further in 2009.

Banks are benefiting. Deposits grew 1.7 percent in May, the ninth-biggest monthly rise since 1973.

‘Not an Anchor’

Nouriel Roubini, an economics professor at New York University and chairman of RGE Monitor, forecasts that the savings rate will ultimately reach 10 percent to 11 percent. What’s critical, he said in a Bloomberg Television interview on June 24, is how quickly it increases.

A rapid rise in the next year because of a collapse in consumption would push the economy, already in its deepest contraction in 50 years, further into recession, he said. If it occurs over a few years, the economy may grow.

Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York, bets the latter is more likely. “The saving rate will be a weight, not an anchor,” restraining expansion, not stopping it, he said. He sees the economy growing 2.8 percent next year after contracting 2.5 percent in 2009.

“The recovery is showing signs of life,” Chris McWilton, president of MasterCard Inc.’s U.S. markets, told a conference on June 4. McWilton, whose Purchase, New York-based company has the world’s second-biggest electronic payments network, said the “freefall” in consumer spending has abated.

Revision Possible

Americans might already be putting away more than the official figures suggest, Maki said. He expects the government will revise the savings rate higher to reflect more up-to-date data on incomes and consumption when it releases its so-called benchmark economic revisions on July 31.

The bigger cash reserves will lessen U.S. dependence on investment by China and other foreign countries to finance economic growth, Gramley said. The current-account deficit, which includes trade in goods, services and income transfers, narrowed in the first quarter to its lowest since 2001 as Americans saved more and brought fewer imports.

Banks are already gaining from American’s thriftiness. Fed data show that deposits at commercial banks stood at $7.5 trillion in the week ended June 10 after recording the biggest monthly increase of this year in May. “They’re getting cheap deposits,” said Allen Sinai, chief economist at Decision Economics in New York cash advance no fax. “It’s part of the healing process.”

Rebuilding Balance Sheets

From 1960 until 1990, households socked away an average of about 9 percent of their after-tax income, government figures show. Americans got out of the habit in the 1990s as they saw their wealth build up in other ways, first through surging stock prices and then soaring home values, Gramley said.

That process has now gone into reverse. U.S. household wealth fell by $1.3 trillion in the first quarter of this year, with net worth for households and nonprofit groups reaching the lowest level since 2004, according to a Fed report. Wealth plunged by a record $4.9 trillion in the last quarter of 2008.

Edmund Phelps, winner of the Nobel Prize in economics in 2006 and a professor at Columbia University in New York, said it may take as long as 15 years for households to rebuild what they lost in the recession.

“The only way we’re going to get a healthy, full recovery is over a long period of time, involving households rebuilding their balance sheets,” Phelps said in an interview on June 22 with Bloomberg TV. “There’s no silver bullet that’s going to get us into good shape quickly.”

‘Opportunity Corner’

Retailers are adjusting their strategies to reflect that new reality of a permanently higher savings rate. Saks Inc., Neiman Marcus Group Inc. of Dallas and other luxury businesses are reducing orders this year to limit supply and boost profitability.

“Across the board you are going to find less of the sizes, less of the availability in almost all of the categories,” Saks Chief Executive Officer Stephen Sadove said in an interview on June 23. The company, which is based in New York and operates 53 Saks Fifth Avenue stores, is aiming to purchase at least 20 percent less from its vendors in 2009.

At her ECCO shoe store in Washington, Harris said more products are being discounted. There used to be only two sales per year. Now, the store has a section set aside for an “opportunity corner,” where something is always on sale, she said.

Travel and hospitality companies also are facing up to the change in consumer behavior. UAL’s United Airlines wants to eliminate 600 flight attendant jobs on top of 1,550 cut in 2007.

Charities Cut Back

Marriott International Inc., the biggest U.S. hotel chain, plans to reduce debt by as much as $650 million this year to counter a decline in travel spending.

“The economic conditions in the U.S. and in the world remain pretty difficult,” Carl Berquist, chief financial officer of the Bethesda, Maryland-based company, said on June 2.

Charities are also cutting back, in some cases eliminating staff and programs, said Del Martin, chair of the Chicago-based Giving USA Foundation.

Without a surge in donations later this year, charitable giving may fall for the second year in a row after dropping to $307.7 billion in 2008 from $314.1 billion in 2007, she said.

Billionaire investor Warren Buffett said it will take time for the U.S. to rebuild its savings and work off debt.

“It’s a slow process, de-leveraging an overleveraged economy, including the consumer,” Buffett, who is chairman and CEO of Omaha, Nebraska-based Berkshire Hathaway Inc., said in a Bloomberg TV interview on June 24. “It can take a while.”

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Eastman Kodak Co. said Monday that is retiring Kodachrome color film after 74 years on the market.

When Kodak (EK, Fortune 500) introduced Kodachrome in 1935, it became the first commercially successful color film. But with the rise of digital technology, Kodachrome sales are now just a fraction of 1% of the Kodak’s still-picture film revenue, the company said in a press release.

Kodak expects current supplies of Kodachrome film to last until early fall. The company said it will continue to produce and sell other varieties of color film.

Shares of Kodak had fallen more than 2% to trade at $2.79 by 10:10 a.m. ET.

"It was certainly a difficult decision to retire it, given its rich history," said Mary Jane Hellyar, of Kodak, in a prepared statement.

Part of that history includes a 1973 Paul Simon song called "Kodachrome" that begged, "Mama, don’t take my Kodachrome away."

Twelve years later, photographer Steve McCurry used Kodachrome for a famous photo of a wide-eyed young Afghan girl peering from the cover of National Geographic Magazine.

Kodachrome is "a complex film to manufacture and an even more complex film to process," Kodak’s press release notes, adding that the remaining processor of the film is Dwayne’s Photo in Kansas.

That difficulty, coupled with the rise of digital technology, hurt demand for Kodachrome, the company said affordable health insurance for families. About 70% of Kodak’s revenue comes from commercial and consumer digital businesses.

McCurry, the photographer who took the iconic National Geographic image in 1985, will shoot one of the last rolls of Kodachrome film. Those photos will be donated to the George Eastman House International Museum of Photography and Film in Rochester, N.Y.

"The early part of my career was dominated by Kodachrome film, and I reached for that film to shoot some of my most memorable images," said McCurry in the press release. "While Kodachrome film was very good to me, I have since moved on to other films and digital to create my images."

Dwayne’s Photo left a farewell letter to the film on its homepage.

"This is a sad occasion for us, as we’re sure it is for many of you," the site said. "While we understand the business realities…we are still sorry to see the film go….Nothing will ever capture ‘those nice bright colors’ in quite the same way."

Have you exhausted your unemployment benefits? We want to hear about your experiences. E-mail your story to realstories@cnnmoney.com and you could be part of an upcoming article. For the CNNMoney.com Comment Policy, click here. 

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Bank of England Chief Economist Spencer Dale said the central bank’s program to buy assets with newly printed money is showing “encouraging” signs of helping the economy escape the recession.

The bank’s plan is “on track” for 125 billion pounds ($204 billion) in purchases by the end of July, Dale said at the Society of Business Economists annual conference in London.

“The growth rate of underlying broad money has picked up in recent months,” and “it is likely that yields are lower than they would have been” for gilts, Dale said today. “And in the corporate bond market, spreads have narrowed sharply.”

The Bank of England cut the benchmark interest rate to a record low and started printing money to buy bonds to fight “a deep recession,” Dale said. Responding to criticism that some purchases of gilts have been from foreign investors who are more likely to buy assets in currencies other than the pound, he said that wouldn’t curb the program’s effectiveness.

“It does not mean the asset purchases will not have any economic benefit,” he said. “Rather, more of the effect will come through a lower exchange rate than through a change in the relative price of domestic assets. As with interest-rate changes, the exchange rate is a key channel through which the monetary easing may be transmitted.”

Dale also noted criticism that the bank has prioritized buying gilts over corporate debt. He said “appropriately targeted” purchases could still improve the flow of credit no fax cash advances.

Economic Significance

“It is important not to judge the economic significance of these purchases by their scale,” he said. “Even relatively small purchases of debt, if appropriately targeted, can improve liquidity and lower the cost of finance to businesses.”

The quantity of private sector assets the bank buys may also decline, Dale said.

“Over a period of time, as market functioning improves, the quantity of private-sector assets held by the asset purchase facility may well decline as assets mature and are rolled over into the private market,” he said. “This should be seen as a sign of success, not of dwindling support.”

Dale said it was still “early days” to judge whether the program had stimulated nominal spending.

He said that he has “little idea” how long the Bank of England will need to keep its benchmark interest rate at a record low of 0.5 percent, and that to make a time commitment on the rate “runs the risk of being overtaken by events.”

Dale reiterated comments made last week at a conference in Oslo that he supports the central bank’s use of an inflation target, which needs to be strengthened with additional tools to help preserve financial stability.

“The single most important lesson from the financial crisis is the need to expand the range of instruments available to policy makers,” Dale said.

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Turkey’s economy may shrink 5.5 percent this year, the World Bank said today, predicting a deeper contraction than previously forecast.

The Washington-based institution lowered its gross domestic product forecast from a contraction of 2 percent forecast in March, according to its Global Development Finance report.

The bank forecast a return to growth in 2010 of 1.5 percent, unchanged from the previous report. The economy will grow 3 percent in 2011, it said.

The global credit crunch has driven Turkey into its first recession in seven years, as demand shrinks at home and in the country’s main export market, the European Union free business card template. The country is negotiating a loan accord with the International Monetary Fund and talks have demonstrated a “convergence” of views, the fund’s deputy head John Lipsky said on June 19.

Turkey’s current-account deficit will shrink to 1.9 percent of GDP this year from 5.6 percent in 2008, the World Bank said. The deficit will be 1.9 percent in 2010 and 2 percent in 2011, according to the report.

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The World Bank raised its growth forecast for China this year and advised policy makers to delay until 2010 any additional stimulus plan to boost the world’s third-largest economy.

China’s economy will expand 7.2 percent in 2009 from a year earlier, up from a 6.5 percent forecast in March, the Washington-based lender said in a quarterly report released today in Beijing. Stocks gained after the announcement.

The World Bank joins Goldman Sachs Group Inc., Morgan Stanley and UBS AG. in raising growth forecasts this year after a 4 trillion yuan ($585 billion) stimulus package triggered record loans and surging investment. The lender said it’s “too early” to say there is a sustained recovery, citing the economy’s dependence on government spending and echoing a State Council caution yesterday against excessive optimism.

It’s “not necessary, and probably not appropriate” for China to add fiscal stimulus this year, the World Bank said. Consumption is likely to slow, pushing down wages and employment, and the nation should retain room for stimulus in 2010, in case the global economy takes a turn for the worse, the bank said.

The Shanghai Composite Index rose 0.9 percent as of the 11:30 a.m. local time break in trading. Industrial & Commercial Bank of China Ltd. climbed 2 percent.

‘Critical’ Phase

Gross domestic product grew 6.1 percent in the first quarter this year from a year earlier, the least since 1999, as exports slid because of the global recession. The economy is in a “critical” phase, the State Council said yesterday, warning that a recovery is not yet on solid foundations.

“Overall growth prospects have improved somewhat, compared to three months ago, but with little carry-over into 2010,” the World Bank said. “The massive monetary impulse of the first five months will support economic growth in the coming quarters.”

Goldman Sachs forecasts an 8.3 percent expansion this year, Morgan Stanley estimates 7 percent and UBS predicts growth of 7.5 percent paydayloans.

“I don’t think China will see a V-shaped recovery back to high single-digit growth rates,” said Louis Kuijs, the World Bank’s senior economist for China in Beijing. “The impact of the policy stimulus next year can realistically not be as large as it has been this year.”

Reserve Currency

The World Bank, created after World War II to fight poverty, said “it may take time” before China’s currency, called the yuan or renminbi, becomes a major reserve currency.

“International experience suggests that several conditions need to be in place, including open capital markets; deep, liquid foreign exchange markets; well developed bond markets; and a more or less flexible exchange rate,” the report said. “It will take time before China has achieved these benchmarks.”

Exports slid for a seventh month in May, dropping by a record 26.4 percent from a year earlier. The bank’s report said trade overall is likely to subtract from growth this year.

“China is still, in a global context, not big enough that it’s going to be the locomotive for a global recovery,” said Ardo Hansson, the bank’s chief economist on China.

Projections by the bank also indicated a budget deficit of 4.9 percent of GDP this year, up from the 3 percent forecast by China.

The report also contains long-term advice, including the importance of educating the workforce.

“A transformation of economic growth strategy toward one that is more solidly based on efficiency and knowledge is widely recognized as essential to China’s long-term prosperity,” the World Bank said. “Although such a transformation calls for a greater capacity for innovation, Chinese enterprises are not fully ready for it.”

The lender noted that the education level of China’s labor force is similar to Taiwan’s in the 1970s.

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The World Bank raised its growth forecast for China this year and advised policy makers to delay until 2010 any additional stimulus plan to boost the world’s third-largest economy.

China’s economy will expand 7.2 percent in 2009 from a year earlier, up from a 6.5 percent forecast in March, the Washington-based lender said in a quarterly report released today in Beijing. Stocks gained after the announcement.

The World Bank joins Goldman Sachs Group Inc., Morgan Stanley and UBS AG. in raising growth forecasts this year after a 4 trillion yuan ($585 billion) stimulus package triggered record loans and surging investment. The lender said it’s “too early” to say there is a sustained recovery, citing the economy’s dependence on government spending and echoing a State Council caution yesterday against excessive optimism.

It’s “not necessary, and probably not appropriate” for China to add fiscal stimulus this year, the World Bank said. Consumption is likely to slow, pushing down wages and employment, and the nation should retain room for stimulus in 2010, in case the global economy takes a turn for the worse, the bank said.

The Shanghai Composite Index rose 0.9 percent as of the 11:30 a.m. local time break in trading. Industrial & Commercial Bank of China Ltd. climbed 2 percent.

‘Critical’ Phase

Gross domestic product grew 6.1 percent in the first quarter this year from a year earlier, the least since 1999, as exports slid because of the global recession. The economy is in a “critical” phase, the State Council said yesterday, warning that a recovery is not yet on solid foundations.

“Overall growth prospects have improved somewhat, compared to three months ago, but with little carry-over into 2010,” the World Bank said. “The massive monetary impulse of the first five months will support economic growth in the coming quarters.”

Goldman Sachs forecasts an 8.3 percent expansion this year, Morgan Stanley estimates 7 percent and UBS predicts growth of 7.5 percent faxless cash advances.

“I don’t think China will see a V-shaped recovery back to high single-digit growth rates,” said Louis Kuijs, the World Bank’s senior economist for China in Beijing. “The impact of the policy stimulus next year can realistically not be as large as it has been this year.”

Reserve Currency

The World Bank, created after World War II to fight poverty, said “it may take time” before China’s currency, called the yuan or renminbi, becomes a major reserve currency.

“International experience suggests that several conditions need to be in place, including open capital markets; deep, liquid foreign exchange markets; well developed bond markets; and a more or less flexible exchange rate,” the report said. “It will take time before China has achieved these benchmarks.”

Exports slid for a seventh month in May, dropping by a record 26.4 percent from a year earlier. The bank’s report said trade overall is likely to subtract from growth this year.

“China is still, in a global context, not big enough that it’s going to be the locomotive for a global recovery,” said Ardo Hansson, the bank’s chief economist on China.

Projections by the bank also indicated a budget deficit of 4.9 percent of GDP this year, up from the 3 percent forecast by China.

The report also contains long-term advice, including the importance of educating the workforce.

“A transformation of economic growth strategy toward one that is more solidly based on efficiency and knowledge is widely recognized as essential to China’s long-term prosperity,” the World Bank said. “Although such a transformation calls for a greater capacity for innovation, Chinese enterprises are not fully ready for it.”

The lender noted that the education level of China’s labor force is similar to Taiwan’s in the 1970s.

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