Update | IMF raises its China growth forecast for this year to 6.5 pc
International Monetary Fund cites expectations of stimulus in upgrade, but warns of risks from corporate debt
The International Monetary Fund on Monday raised its forecast for China’s economic growth this year by 0.3 percentage points to 6.5 per cent, on expectations of continued policy stimulus.
At the same time, it downgraded India’s growth outlook by 0.4 percentage points to 7.2 per cent as consumption in Asia’s third-largest economy takes a hit from the government’s recent decision to abolish large currency notes.
China’s economy grew 6.7 per cent over the first three quarters of 2016, in line with the country’s 6.5 to 7 per cent growth target, but risks are also increasing with growth reliant on government spending, record lending by state banks and an overheating property market.
The IMF warned of risks to China’s economy of a sharp slowdown or disruptive adjustment, as the government has been slow to tackle high corporate debt, with capital outflows also potentially exacerbating pressures.
The country’s leadership said China would focus on tackling financial risks this year, and the head of the state planning agency said China would cap the corporate debt ratio at current levels.
But China’s record 17.8 trillion yuan (HK$19.9 trillion) in credit last year has left analysts sceptical that policymakers will be able to wean the economy off years of debt-fuelled growth and still hit official economic targets.
The IMF’s forecast for a 6.5 per cent expansion this year is roughly in line with analysts and policy insiders, who have said China was likely to target around 6.5 per cent growth in 2017.
The lender raised its forecast for China’s 2016 growth to 6.7 per cent from 6.6 per cent, but still expects growth to slow to 6 per cent in 2018.
The IMF maintained its forecast that global growth would pick up to 3.4 per cent this year and 3.6 per cent next year from the 2016 estimate of 3.1 per cent.
It cited China as a key factor driving a faster global recovery this year, but a slowdown in the world’s second-largest economy is also as one of the main downside risks to global growth.
India, which has recorded some of the world’s strongest recent growth, is experiencing a shock to consumption from the government’s decision in early November to withdraw larger currency notes from circulation, to crack down on tax dodgers and counterfeiters.
Citing the blow to the cash-reliant economy, the IMF chopped a full percentage point off its fiscal 2016-17 growth outlook, to 6.6 per cent. The fiscal year ends on March 31.
The fund trimmed its fiscal 2017-18 forecast for India to 7.2 per cent from 7.6 per cent.
