China Faces Significant Downside Risks: IMF
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The International Monetary Fund has warned that the worsening eurozone crisis poses a key risk to China’s economy. However, the Fund added that China has the ability to handle economic shocks, citing fiscal spending at the first line of economic defence.
At the same time, the IMF highlighted risks stemming from the domestic market, particularly the sharper-than-anticipated decline in the property market which “could have significant implications for growth in China.”
The International Monetary Fund has warned that the worsening eurozone crisis poses a key risk to China’s economy. However, the Fund added that China has the ability to handle economic shocks, citing fiscal spending at the first line of economic defence.
At the same time, the IMF highlighted risks stemming from the domestic market, particularly the sharper-than-anticipated decline in the property market which “could have significant implications for growth in China.”
According to the IMF’s revised outlook, China is expected to grow 8 percent this year, though the deteriorating eurozone crisis may cut that figure by half.
The IMF target is above the government’s forecast of 7.5 growth percent this year.
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The Fund said:
[quote] The main external risk continues to be spillovers to China from a worsening of the euro area crisis. Assuming no policy response in China, growth could decline by as much as four percentage points in response to a one and three quarter percentage point slowdown in global growth. [/quote]
At the same time, the IMF praised Chinese leaders for policy adjustments that have helped to substantially reduce external imbalances.
“Policies should continue to be geared toward achieving this year’s growth targets. In the event of a worsening of the external outlook, China has ample room to respond forcefully, using fiscal policy as the main line of defence and with emphasis on measures that support China’s medium-term reform objectives,” the IMF report said.
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In a key change, the IMF noted that China’s yuan was now only “moderately undervalued” – a softening of previous language and a reflection of growing international consensus that the renminbi is closing in on its fair value after almost a decade of currency manipulation.
Markus Rodlauer, deputy director of the IMF’s Asia and Pacific Department, said:
[quote] Overall we are confident that China is experiencing what we would call a soft landing. [/quote]
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