THE INTERNATIONAL MONETARY FUND has cut its forecasts for China’s growth to 8.0% this year and 5.6% next. That is a one-tenth of a percentage point trim from its July projections for both years and a four-tenths of a percentage point cut for this year from its cheery April forecast.
Its projection for 2022 is the same as its April number, suggesting it sees this year’s drags on growth gradually easing next year and Beijing’s managed long-term slowdown in growth returning to its planned trajectory.
The figures are contained in the IMF’s latest World Economic Outlook update, published for this week’s joint annual meetings with the World Bank.
The IMF is habitually more bullish in its forecasts for China’s growth than other international agencies and many private economists. (This Bystander will forego any cheap shots at the Fund, which is embroiled in an unsightly scandal involving its managing director allegedly seeking to trade off a higher ranking for China in the World Bank’s Doing Business report for Beijing’s support for a capital increase.)
The latest lowering of the IMF’s forecasts for China are in line with the slightly more unsettled outlook it is adopting overall in the face of the uncertainties that the Delta variant, supply chain disruptions and inflationary pressures are bringing to economic activity globally.
The Fund says the reason for marking down China’s prospects this year is stronger-than-anticipated scaling back of public investment. However, were the energy or real estate crises to worsen, that could lead to renewed stimulus. Expectations of significant monetary tightening this year and carrying into 2022 after last year’s sizeable fiscal expansion, based on the government’s 2021 budget and the fiscal outturn to date, would then be moot.
The IMF also notes the increasing disruptions to supply and the challenge to monetary policy from increasing risk-taking in financial markets and rising fragilities in the nonbank financial institutions sector.
Both are concerns with direct application to China, with the downside risks from both increasing, if anything.
The Fund underlines the need for clarity and consistency of actions for avoiding unnecessary policy accidents that roil financial markets and set back the global recovery. It mentions explicitly disorderly debt restructurings in China’s property sector and escalations in cross-border trade and technology tensions, notably between the United States and China.
It concludes that a decoupling of basic scientific research between the United States and China could have significant adverse effects on global productivity, with an estimated first-round decline of up to 0.8%.