Containers being loaded at a dock in Haikou, capital city of Hainan province. IMF officials say some modest financial support for the Chinese economy is warranted in light of the risk of a global downturn.[China Daily]
The International Monetary Fund (IMF) has lowered its forecast for China's economic growth in 2012 to 8.25 percent from the previous 9 percent last September, citing reasons including weakening exports and an uncertain global economy.
The IMF has also downgraded the prospects for world economic growth in 2012 to 3.25 percent from 4 percent, largely because the eurozone economy is expected to go into a recession this year.
In its China Economic Outlook released Monday, the IMF warned that China's economic growth, which came in at 9.2 percent last year, could fall by as much as 4 percentage points if the euro area experiences the IMF's downside scenario, which would see global growth falling by 1.75 percentage points.
"However, a track record of fiscal discipline has given China ample room to respond to such an external shock," said the IMF in the report. The government should cushion the impact of a deeper slowdown with measures including tax cuts that amount to about 3% of gross domestic product, the IMF said.
The IMF urged policymakers to provide fresh stimulus through the budget rather than the banking system, since the large credit stimulus in 2009 and 2010 has increased risks in the banking system.
"China needs some time to digest the side effects of the surge of credit unleashed in the wake of the global crisis," he said.
Both investment and consumption have been strong despite weakening external demand. Also, the government's efforts to calm the property market have been effective, and underlying investment remains healthy due to government efforts to expand the supply of subsidized housing.
Upward pressure on the Chinese currency has diminished recently and the pace of reserve accumulation has fallen, partly due to a smaller trade surplus and valuation effects associated with a stronger US dollar.
The IMF is positive about China's growth in the coming years, expecting the country to grow by 8.75 percent next year.