IMF Cuts China Growth Forecast, Citing Downside Trade War Risks

Date: Wednesday, June 5, 2019
Source: Sourcing Journal

The International Monetary Fund trimmed its forecasts for economic growth in China, and said the trade war with the U.S. is tilting the balance of risks to the downside.

The world’s second-largest economy is forecast to expand by 6.2% this year and 6.0% in 2020, a 10th of a percentage point down from the previous estimate in both cases, the fund said at a briefing in Beijing Wednesday.

“China and its partners should work constructively to address shortcomings in the trading system,” the fund said in a release on the completion of its annual Article IV mission to China. At the same time, the IMF said that no further policy stimulus would be needed to support the domestic economy, “provided there are no further increases in tariffs or a significant slowdown in growth.”

China’s economy is undergoing a domestic deceleration and rising tensions with the U.S., which is raising tariffs on Chinese exports and looking to cut off companies such as Huawei Technologies Co. from the U.S. market. President Xi Jinping said this week that output is stabilizing and has improved noticeably, the latest in a series of official statements talking up the strength and resilience of the economy.

The IMF’s forecast compares with the median estimate among economists surveyed by Bloomberg of 6.3% expansion in 2019 and 6% next year. The economy showed an across-the-broad slowdown in April, and that trend is likely to be carried into the coming months. The PBOC has maintained its policy of targeted stimulus, and fiscal policy has been stepped up.

The IMF said that while China has made progress on reforms, it should allow market forces to play a more decisive role and accelerate its opening up to the rest of the world.

China’s top banking regulatory agency announced new measures to open up its financial services industry to foreign investors last month last month, and PBOC Governor Yi Gang said earlier in the year the bank will focus on developing more hedging tools to help foreign investors manage risks.

 

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