SYDNEY (Reuters) - China’s slowdown might not be quite as severe as first feared but its “momentous” shift from investment-led growth is still having a chilling effect on trade globally, the International Monetary Fund said on Tuesday.
The Washington-based organisation cited recent policy stimulus from Beijing as it nudged up forecasts for China’s growth, even as it trimmed the outlook for the world as a whole.
The Fund now expects economic growth of 6.5 percent this year and 6.2 percent next, both up two-tenths of a percentage point from the last outlook in January.
That would still be a down from the 6.9 percent growth posted for 2015, which itself was the poorest showing in a quarter of a century.
Official figures for gross domestic product (GDP) due later this week are expected to show annual growth eased to 6.7 percent in the first quarter, though data from Beijing is often greeted with some scepticism by financial markets. ECONCN
“China, now the world’s largest economy on a purchasing-power-parity basis, is navigating a momentous but complex transition toward more sustainable growth based on consumption and services,” the Fund said in the foreword to its 200-page global outlook report.
“Ultimately, that process will benefit both China and the world,” added the Fund, whose spring meetings along with the World Bank will be held in Washington this week.
“Given China’s important role in global trade, however, bumps along the way could have substantial spillover effects.”
China accounts for a tenth of world trade and is among the top 10 trading partners for more than 100 countries. Crucially it was the biggest single spender on infrastructure, housing and the like, accounting for a quarter of world investment.
As that investment boom cooled, it took a toll on other countries’ exports. The IMF estimated every 1 percentage point investment-driven drop in China’s GDP, cut growth for the entire Group of Twenty by 0.25 percentage points.
“Even countries that have few direct trade linkages with China are being affected through the Chinese slowdown’s impact on prices of commodities and manufactured goods, and on global confidence and risk sentiment,” the Fund said.
It offered a long list of suggestions for reform, ranging from strengthening market forces in China, to widening the social safety net and reining in state-run enterprises.
“A well-managed rebalancing of China’s growth model would ultimately lift global growth and reduce tail risks,” the Fund concluded.
Reporting by Wayne Cole; Editing by Simon cameron-Moore