Beijing - The World Bank on Thursday raised its forecast for China's economic growth this year to 9.8 per cent, marginally higher than its previous forecast, citing slowing inflation and limited economic impact from the devastating Sichuan earthquake.

China's economy had "moderated in line with the global economy's slowdown" but real growth of exports and imports "remains robust," the bank said in a quarterly economic report that raised its previous forecast of 9.4 per cent for gross domestic product (GDP) growth.

"The upward revision to our growth forecast largely reflects revised GDP data showing stronger service sector growth," said David Dollar, the World Bank's China director.

"Amidst weaker and uncertain global prospects, China's growth will be supported by strong international competitiveness and a robust domestic economy," Dollar said.

In April, China raised its estimated GDP growth for last year to 11.9 per cent, the fastest growth since 1994.

The World Bank said China's huge trade surplus was declining and that "headline inflation is receding even as non-food price pressures emerge" from oil and other commodities.

China reported monthly inflation of 7.7 per cent year-on-year in its consumer price index in May, down from a 12-year high of 8.7 per cent in February.

The recent Sichuan earthquake was "enormous in human tragedy" but would have little impact on the wider economy, Dollar said.

But Louis Kuijs, the World Bank's principal economist in China said that global economic uncertainty still called for "vigilance and flexibility" from the Chinese government.

"If there is a more serious slowdown than we currently envisage, a fiscal easing could be considered," Kuijs said.

He said that bringing China's subsidized fuel prices closer to market levels would be "important for rebalancing and to reduce distortions." (dpa)