IMF Warns China’s Growth May Halve If…

The International Monetary Fund warned yesterday that China’s economic growth could halve this year, should the European debt crisis escalate any further. Is China really heading for a sharp landing?

China’s stellar economic performance could soon come to an abrupt halt this year should the eurozone fall out.

The International Monetary Fund warned yesterday that China’s economic growth could halve this year, should the European debt crisis escalate any further. Is China really heading for a sharp landing?

China’s stellar economic performance could soon come to an abrupt halt this year should the eurozone fall out.

In an IMF report that underscores the importance of global trade to China, the Fund cautioned that export-reliant China’s 2012 economic growth could plunge as much as 4 percent, should Europe fare worse than expected this year.

Earlier this year, IMF had already slashed China’s growth forecast to 8.2 percent from a previous forecast of 9 percent.

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Highlighting China’s vulnerability to global demand shocks, IMF said:

[quote] The global economy is at a precarious stage and downside risks have risen sharply. Should such a tail risk of financial volatility emanating from Europe be realized, it would drag China’s growth lower. [/quote]

At the same time, the Fund urged China to “respond with a significant fiscal package” equivalent to approximately 3 percent of its GDP, including reductions in consumption taxes, subsidies for consumer goods to boost spending, and investments in pollution-mitigation projects.

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However, IMF also urged China to fund the stimulus through its budget instead of using monetary or banking stimuli, fearing that a significant slowdown in growth could add undue pressure on China’s bank balance sheets.

Last Friday, China Daily, a state-controlled newspaper, reported that China is considering helping the debt stricken eurozone by contributing to bailout funds, stressing that a stable Europe was crucial for China’s growth.

He said:

[quote] Helping stability in the European market is actually helping ourselves. [/quote]

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