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ECONOMY

IMF cuts forecast for China's growth

After shock downturn in the first quarter, the predicted figure falls from 8.2pc to 8pc

PUBLISHED : Wednesday, 17 April, 2013, 12:00am
UPDATED : Wednesday, 17 April, 2013, 4:56am
 

The International Monetary Fund lowered its forecast for China's economic growth this year to 8 per cent yesterday, a day after Beijing announced a shock downturn in the first quarter.

The IMF's "World Economic Outlook" report cut its prediction for growth in the world's second-largest economy from the 8.2 per cent it had forecast in January.

It did not give a reason for the decision but said expansion would pick up slightly from last year's actual 7.8 per cent, citing "continued robust domestic demand in both consumption and investment and renewed external demand".

The IMF also cut its forecast for world economic growth but predicted it would pick up in the second half of the year.

On Monday, China unveiled data showing growth slowed to a surprisingly weak 7.7 per cent in the first three months of this year, a slowdown from 7.9 per cent in the previous quarter.

The IMF cut its forecast for China's growth next year to 8.2 per cent from 8.5 per cent.

"In China, the use of more market-based financial instruments means that about half of financial intermediation now takes place outside traditional banking channels in less-well-supervised parts of the financial system," the report said.

It also mentioned potential "disruptions to trade from territorial disputes", an apparent reference to ongoing rows China has with Japan and some Southeast Asian countries.

The IMF said world output would expand 3.3 per cent this year, compared with the 3.5 per cent it predicted in January. That left the pace virtually flat from last year's 3.2 per cent, with slower than expected growth in the US and prolonged stagnation in the euro zone being the main reasons for the downgrade.

The global crisis lender said short-term risks still loomed, especially in the euro zone, where Cyprus's fresh bailout and Italy's weaknesses could spark fresh setbacks.

US growth was forecast at 1.9 per cent this year, owing to larger than expected government spending cuts, and the euro zone was expected to contract 0.3 per cent.

Among leading economies, Japan is the one bright spot, its IMF-approved effort to reflate the economy with aggressive monetary easing leading to an upgrade of its growth prospects to 1.6 per cent from 1.2 per cent - though Japan's huge debt load raised questions of sustainability.

The IMF said that it foresaw slower growth in large emerging economies such as Russia, China, Brazil and India, underscoring the global sense of economic weakness.

"In the medium term, the key risks relate to adjustment fatigue, insufficient institutional reform and prolonged stagnation in the euro area as well as high fiscal deficits and debt in the United States and Japan," the IMF said.

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