China’s Growth Seen Accelerating Then Braking

The International Monetary Fund’s most recent quarterly update to its global economic outlook sees China’s economy expanding by 10.5% this year before moderating its growth rate to 9.6% in 2011 in line with the overall slowing of the global economy that the Fund is forecasting for next year. Compared to its previous update, that means the IMF is now expecting China’s economy to growth faster than it thought this year thanks to the ‘strong rebound in exports and resilient domestic demand’ and slow more than it expected next as ‘further measures are taken to slow credit growth and maintain financial stability’.

The downside risk for China, like all Asian countries, is global financial turbulence in the wake of the eurozone crisis (one of the worsening external challenges to China’s economy that Prime Minister Wen Jiabao referred to recently). Though China, again like most Asian countries, has limited direct financial exposure to the euro area economies, a stall in the European recovery that spilled into the global economy would affect it through both trade and financial channels. Furthermore, in such circumstances it would be expected to be consumer of last resort for the rest of the region’s exporters, a position of economic leadership with costs and one with which Beijing may not yet be comfortable.

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