IMF cuts China growth forecast
THE International Monetary Fund has lowered its forecasts for China’s growth and said making “decisive” policy changes would put the economy on a more sustainable path.
BEIJING — The International Monetary Fund (IMF) has lowered its forecasts for China’s growth and said making “decisive” policy changes would put the economy on a more sustainable path.
Expansion will be about 7.75% this year and next, David Lipton, first deputy MD of the IMF, said yesterday in Beijing after concluding an annual review of China. Last month, the IMF forecast growth of 8% this year and 8.2% expansion next year.
Mr Lipton warned of risks from a record expansion of credit, with the revised outlook following an unexpected slowdown in the first quarter. Premier Li Keqiang, who took office in March, is planning policy changes that would open up more of the economy to private investment and alter a householdregistration system that impedes urbanisation.
“While China still has significant policy space and financial capacity to maintain stability even in the face of adverse shocks, the margins of safety are narrowing and a decisive impetus to reforms is needed to … move the economy to a more sustainable growth path,” Mr Lipton said. However, he said China’s monetary and fiscal policies were “appropriate” and the IMF was not suggesting China restrict credit now.
Mr Lipton spoke after meeting leaders including vice-premiers Wang Qishan and Ma Kai, People’s Bank of China governor Zhou Xiaochuan, and Finance Minister Lou Jiwei.
The fund’s lower forecast is in line with recent reductions by economists surveyed by Bloomberg News. The median estimate of 51 analysts this month was for growth of 7.8% this year, down from last month’s projection of 8%.
Mr Lipton repeated the IMF’s view from last year that the yuan was “moderately” undervalued against a basket of currencies, and said a stronger yuan over time was needed to redress the issue. Further progress was needed on relaxing controls on interest rates and the exchange rate, he said.
China disputed the assessment last year and said the yuan was “now close to equilibrium or, at most, slightly undervalued”, according to last year’s annual report. The currency has gained about 3.5% against the dollar in the past year and yesterday weakened 0.1% to 6.1267/$.
China had assured the IMF that reining in credit expansion was a priority, said Mr Lipton.
China needed a “decisive push for rebalancing toward higher household incomes and consumption,” Mr Lipton said.
The nation should allow more competition in industries that are “currently considered strategic” and increase dividends from stateowned enterprises to “improve financial discipline and provide additional fiscal revenue,” Mr Lipton said. Bloomberg