IMF Lifts GDP Forecasts for China Following Supply Side Structural Reforms

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The International Monetary Fund’s latest “World Economic Outlook” has raised its forecasts for China’s economic growth for both the current year and next year.

The IMF has raised its GDP growth forecasts for 2017 and 2018 to 6.8% and 6.5% respectively, for increases of 0.2 and 0.3 percentage posts compared to its forecasts in April.

The IMF report is more upbeat about this year’s growth prospects than China’s own National Bureau of Statistics, which sees growth of around 6.5%.

The WOE report said that supply side structural reforms and monetary policy were the main reasons behind the current year’s upward adjustment, while the 2018 forecast was raised because the IMF sees Beijing maintaining policies to prop up growth – in particular high levels of public investment.

According to the IMF China is currently on track to achieve Beijing’s target of doubling 2010 GDP by 2020.

The IMF also expects capital outflow risk to decline, despite marked increase in the RMB exchange rate during the four-month period from 9 May to 8 September this year, when the Chinese yuan rose 6.4% against the US Dollar. According to its forecasts the RMB will begin to fluctuate more against the greenback in the fourth quarter.

IMF said that the recovery of the Eurozone and emerging economies will push global economic growth to 3.6% and 3.7% in 2017 and 2018 respectively, for an increase of 0.1 percentage points.

While the US was one of the key drivers of the global economy last year, the impact of the Europe’s recovery has become more pronounced in 2017, prompting the IMF to make upward adjustments to the growth forecasts for a slew of EU nations including France, Germany, Italy and Spain.

The WEO notes that economies accounting for 75% of global GDP are currently seeing accelerating growth, which is the highest percentage in nearly a decade, and that countries should take advantage of the current health of the global economy to drive through much-needed structural reforms.

When it comes to reforms in China the IMF notes that state-owned enterprises have seen their share of industrial production decline from 40% to around 15% over the past 15 years, yet their share of corporate debt remains excessively high.

It called for China to work hard to contain credit growth, pointing out that if superficial financial re-structuring is used to meet deleveraging targets such as reductions in corporate debt-asset ratios, risk will continue to increase and it will be impossible to resolve deep-seated structural problems.

The IMF also points out that RMB exchange rate flexibility needs to increase, with mainstream economists opining that China should take advantage of its current strong performance to push through with reforms.

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