IMF lowers China's 2015 growth to 7pc

Agency cuts forecast from 7.3pc, but advises against further stimulus

PUBLISHED : Friday, 06 June, 2014, 12:38am
UPDATED : Friday, 06 June, 2014, 12:38am

The International Monetary Fund cut its economic growth forecast for China to about 7 per cent for next year, but urged the authorities to avoid further stimulus measures and concentrate on curtailing financial risks instead.

In remarks that projected confidence about the health of the world's second-biggest economy, the IMF said Beijing must keep its word on implementing reforms that would correct imbalances, including a "moderately undervalued" yuan.

Specifically, it said conditions were right for China to take the next step in freeing its interest rates market, challenging the view among some senior Chinese officials that the country is not yet ready for such a move.

"We are not counselling stimulus at this point," the IMF's first deputy managing director David Lipton told reporters, when asked if he thought the government should do more to shore up flagging economic growth. "We don't think there are sufficient signs that would warrant that."

Rather, he said the bigger threat to China was its persistent reliance on debt and investment in areas such as real estate to power its economy, weaknesses that are still growing today.

So unless the economy was at risk of missing the government's growth target of about 7.5 per cent this year by a substantial margin, Lipton said more stimulus was unwarranted.

"Vulnerabilities have risen to the point that containing them should be a priority," he said, noting that the IMF believed China could hit its economic growth target for this year.

For next year, the IMF lowered its economic growth projection from 7.3 per cent to about 7 per cent - a level that Lipton said was realistic if China were to carry out extensive financial reforms, as it promised to.

Two policy steps in the past week significantly broadened the support to the economy without breaching vows to avoid major stimulus, through a quickening of government spending and a second targeted cut in reserve requirements for some banks. The moves look intended to keep growth near 7.2 per cent, which Premier Li Keqiang has said is needed to support jobs growth.

"There is no need for such a move as long as we could maintain quarterly GDP growth rates of 7.2-7.3 per cent, which could be a tipping point for policy change," said Wang Jun, a senior economist at the China Centre for International Economic Exchanges, a well-connected think tank.

Beijing has announced a series of modest stimulus measures in recent months after the economy got off to a weak start this year.

Business surveys in the past week signal activity may be starting to stabilise but a slight pickup in parts of the economy does not mean a solid, broader recovery is under way.