Another Cut Forecast Of China’s Economic Growth

Change in IMF forecasts between July and October 2012 of China's GDP growth. Source World Economic OutlookThe World Bank and the OECD have already cut their growth forecasts for China for this year. Now comes the IMF. In its latest World Economic Outlook it says its expects China’s growth to be 7.8% this year, down from the 8% it expected in July (see chart, right). That would be the weakest growth in more than a decade.

The IMF does see growth picking up to 8.2% next year, though it had previously expected 8.4%. Achieving any pick-up will probably depend more on what policy makers in Europe and the U.S. do than those in Beijing. If the euro zone crisis worsens and the U.S. falls off its fiscal cliff, matching this year’s growth will be a challenge in itself.  “The balance of risks to the near-term growth outlook is tilted to the downside,” the Fund says.

Beijing is being cautious in its policy response to the slowdown, providing moderate monetary and fiscal stimulus. The massive spending spree after the 2008 global financial crisis still hasn’t played itself out. Another round of extensive bank-financed infrastructure spending is just too risky for still strained bank balance sheets. Nor is investment-driven growth sustainable if Beijing is serious about rebalancing the economy towards more domestic demand.

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