THE INTERNATIONAL MONETARY Fund exempted China from its ‘Brexit’-induced downgrades to its global economic forecast. In its mid-year update to its World Economic Outlook it has raised its forecast for China’s growth this year by 0.1 of a percentage point from its April projection to 6.6 percent and left its forecast for 2017 unchanged at 2.2%.
The Fund notes the effectiveness of the infrastructure spending stimulus in the first half of this year and the relative isolation of China’s economy from Brexit effects. However, it does warn that China would not escape the effects of a severe downturn in the European economy should that happen as a result of Brexit. And this Bystander has noted some of the risks to stimulus spending.
The IMF’s key paragraph:
In China, the near-term outlook has improved due to recent policy support. Benchmark lending rates were cut five times in 2015, fiscal policy turned expansionary in the second half of the year, infrastructure spending picked up, and credit growth accelerated. The direct impact of the U.K. referendum will likely be limited, in light of China’s low trade and financial exposure to the United Kingdom as well as the authorities’ readiness to respond to achieve their growth target range. Hence, China’s growth outlook is broadly unchanged relative to April (with a slight upward revision for 2016). However, should growth in the European Union be affected significantly, the adverse effect on China could be material.