WB: China's Economy to Grow 8.2% This Year

China's economy is expected to expand at 8.2 percent in 2012 and 8.6 percent in 2013 as domestic demand will continue to boost the world's second-largest economy amid weak external demand, the World Bank (WB) said Thursday.

"The Chinese economy is in the midst of a gradual slowdown," the WB said in its China Quarterly Update released on Thursday, expecting cyclical weakness to dominate the country's near-term outlook.

The WB's projection about China's economic outlook was 0.3 percentage points lower than what the Asian Development Bank forecast on Wednesday.

The WB projected domestic demand will contribute 8.4 percentage points to China's growth in 2012 as consumption growth slows slightly partly due to base effects and investment growth decelerates rather sharply.

Meanwhile, as world trade is anticipated to remain weak, external demand will subtract some 0.3 percentage points from growth. The projected rebound remains modest as these trends are likely to weigh on 2013 as well, the WB said in its report.

Inflation looks to rise by 3.2 percent in China in 2012, as growth slows, commodity-price impulses fade and property markets cool further, the WB said.

China's external terms of trade will likely improve as import prices dependent on commodities decelerate by more than export prices dominated by manufactures.

The appreciation of the Chinese currency renminbi, or the yuan, is expected to slow as long as the weak external environment continues to weigh on export volumes and prices, said the report.

The current account surplus is projected to increase slightly to 3 percent of GDP in 2012 and 3.3 percent in 2013. Terms of trade improvements offset an initially lower trade balance driven by export weakness and import robustness, according to the report.

With trade volumes recovering in 2013 and the terms of trade improving further, the surplus would also expand in 2013. Despite continued net capital inflows, foreign exchange reserves would accumulate more slowly.

While projecting a gradual slowdown, the WB warned of two significant downside risks for China's economic growth -- the ability of high income countries to avert a deeper economic downturn and the ongoing correction in property markets domestically.