THE INTERNATIONAL MONETARY Fund tags a greater-than-envisaged slowdown in China as one of the triggers beyond escalating trade tensions that could cause it to become even gloomier about global growth prospects.
In the latest update to its World Economic Outlook, the Fund has cut its October forecasts for global growth this year and next by 0.2 of a percentage point and 0.1 of a percentage point to 3.5% and 3.6% respectively.
For China specifically, the Fund says that, despite fiscal stimulus that offsets some of the impacts of higher US tariffs, its economy will slow due to the combined influence of needed financial regulatory tightening and trade tensions with the United States.
A resumption of the ramping up of US tariffs after the March 1 expiry of the truce in the two countries’ trade dispute — and with it, presumably, retaliatory tariffs against the US on Beijing’s part — is one self-evident risk.
However, the Fund is holding to its October forecast of 6.2% growth in China in both 2019 and 2020. That will be down from this year’s 6.6%.
In detail, it says:
China’s economy slowed in 2018 mainly due to financial regulatory tightening to rein in shadow banking activity and off-budget local government investment, and as a result of the widening trade dispute with the United States, which intensified the slowdown toward the end of the year. Further deceleration is projected for 2019. The authorities have responded to the slowdown by limiting their financial regulatory tightening, injecting liquidity through cuts in bank reserve requirements, and applying fiscal stimulus, by resuming public investment. Nevertheless, activity may fall short of expectations, especially if trade tensions fail to ease. As seen in 2015–16, concerns about the health of China’s economy can trigger abrupt, wide-reaching sell-offs in financial and commodity markets that place its trading partners, commodity exporters, and other emerging markets under pressure.