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POLITICAL ECONOMY
China's GDP growth to slow to 7.5% this year, 7.3% next: IMF
by Staff Writers
Beijing (AFP) April 08, 2014


The International Monetary Fund said Tuesday China's economic growth would slow to 7.5 percent this year and 7.3 percent in 2015, avoiding a "hard landing" if the government addresses risks and undertakes reforms.

Releasing its latest World Economic Outlook report, the IMF also said India, South Korea and Indonesia among broader Asian economies should benefit from an improving export environment, though Thailand's prospects remain hostage to political instability.

The IMF said its outlook for China "is predicated on the assumption that the authorities gradually rein in rapid credit growth and make progress in implementing their reform blueprint so as to put the economy on a more balanced and sustainable growth path".

The estimates for growth in China's gross domestic product are unchanged from the IMF's previous forecasts in January.

But on Monday, the World Bank trimmed its own 2014 forecast to reflect "the bumpy start to the year", predicting China's GDP to grow 7.6 percent this year, with its 2015 figure unchanged at 7.5 percent.

The outlooks are the first by the global institutions since China announced last month that its 2014 GDP growth target was about 7.5 percent, unchanged from last year.

Premier Li Keqiang, however, has suggested the government can accept a lower figure so long as growth achieves "fairly full employment" and helps "increase people's income".

The world's second largest economy grew 7.7 percent in 2013, the same as in 2012 -- which was the slowest rate of expansion since 1999. If this year's GDP figure falls below 7.5 percent it would be the first time in 16 years the objective had not been reached.

China's leadership says it wants to transform the growth model from an over-reliance on often wasteful investment, instead making private demand the driver for development. It expects the makeover to result in slower but more sustainable rates of expansion.

"The likelihood of a hard landing in China after over-investment and a credit boom continues to be small," the IMF said, citing the power of policymakers to smooth out potential bumps in the transformation.

Still, it cautioned that responding will become harder if continuing problems such as rapid rises in credit are not addressed.

- 'Encouraging steps' -

"The economic policy priority is to achieve a soft landing on the transition to more inclusive and sustainable, private-consumption-led growth," the IMF said.

Necessary reforms include liberalisation of interest rates, a more transparent monetary framework, more exchange rate flexibility and heightened regulation and supervision of the financial system.

The IMF noted that a major Communist Party meeting last November, the Third Plenum, published a reform plan along those lines. It welcomed "encouraging steps" already taken in financial sector and exchange rate policy, but stressed the need for urgency.

"Timely implementation must be a priority," it said.

"Reining in rapid credit growth and curtailing local government off-budget borrowing are near-term priorities, critical for containing rising risks."

The IMF said India's economy, Asia's third largest after China and Japan, would grow 5.4 percent in 2014 before improving to 6.4 percent next year, as export competitiveness improves and recently approved investment projects proceed.

South Korea's GDP is set to expand 3.7 percent this year before slightly improving to 3.8 percent next year, getting a boost from exports as well as from stronger domestic demand, the IMF said.

Indonesia, Southeast Asia's largest economy, will grow 5.4 percent this year and 5.8 percent next, the IMF said, with "subdued investor sentiment and higher borrowing costs" as negative factors.

Thailand will slump to growth of 2.5 percent this year before bouncing back to expand 3.8 percent in 2015, the IMF said. But "the near-term outlook remains clouded by the political situation", it said in reference to months of anti-government protests.

"The economy is slowing as private demand weakens and public investment plans are delayed," it said.

In terms of risks for the region, developments in China loom large.

"A sharper-than-envisaged slowdown in China -- for instance, from the implementation of structural reforms -- would have significant spillovers for the rest of the region, especially in economies linked to the regional supply chain and commodity exporters," the IMF said.

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