IMF predicts slower economic growth for China

The International Monetary Fund (IMF) has lowered its forecast for China’s economy growth to 7.75% for this year,lower than the 8% forecast for 2013 that the IMF published in its World Economic Outlook in April this year, the BBC has reported.

This new forecast follows the IMF’s mission to Beijing, Shanghai, Guiyang and Anshun in China to hold discussions on prospects for the country’s economy and the challenges it faces.

During meetings with senior officials from the Chinese government, the People’s Bank of China, private sector representatives and academics, topics such as the effects of China’s policies globally and vice versa, in the context of the IMF’s analysis of policy spillovers from the top five systemic economies, were also discussed. David Lipton, the IMF’s first deputy managing director, joined the final policy discussions and met with vice premier Ma Kai, People’s Bank of China governor Zhou Xiaochuan, finance minister Lou Jiwei and National Development and Reform Commission vice chairman Liu He.

The mission concluded that despite weak and uncertain global conditions, the pace of China’s economy should pick up moderately in the second half of 2013, in line with a projected mild pick-up in the global economy and as the recent credit expansion gains traction. Inflation is expected to be around 3% by the end of this year, while the external current account surplus is predicted to remain the same at around 2.5% of GDP.

However the IMF reports that China faces economic challenges, despite the favorable near-term outlook, with a rapid growth in total social financing as well as the quality of investment and its impact on repayment capacity. The country’s growth is said to have become too dependent on the continued expansion of investment by the property sector and local governments, which in turn affects financial positions. Further signs that the current growth model should change include high income inequality and environmental problems.

According to the IMF, the new Chinese government has said that it intends to embark on a comprehensive reform agenda that will ensure more balanced, inclusive and environmentally friendly growth going forward.