Resilient growth of China injects vigor into world economy

Resilient growth of China injects vigor into world economy


WASHINGTON: The International Monetary Fund (IMF) raised its forecast for global economic growth in 2017, while China’s robust economic growth is one of the main factors that supported the improved outlook. Amid a rising tide of protectionism and increasing policy uncertainties, China’s economy remains resilient, which has contributed a lot to global growth.

In its latest World Economic Outlook, the IMF forecast the global economy will grow by 3.5 percent in 2017, an acceleration from the 3.1 percent growth last year and an upgrade of 0.1 percentage point from its January projection. It kept the 2018 forecast for global economic growth unchanged at 3.6 percent.

“Our new projection for 2017 is marginally higher than what we expected in our last update. This improvement comes primarily from good economic news for Europe and Asia, and within Asia, notably for China and Japan,” IMF chief economist Maurice Obstfeld told a press conference on Tuesday.

Momentum in the global economy has been building since the middle of 2016, Obstfeld said, noting that the acceleration of global economic growth will be broad-based across advanced, emerging and low-income economies, building on gains in both manufacturing and trade.

Commodity prices have recovered since bottoming out a year ago, relieving global deflationary pressure, according to the IMF report. It also described financial markets as “buoyant” amid expectations of further stimulus in China, along with fiscal expansion in the United States. “The global economy seems to be gaining momentum — we could be at a turning point,” Obstfeld said.

In its report, the IMF upgraded its estimate for China’s growth to 6.6 percent from its previous projection of 6.5 percent for the year of 2017, and to 6.2 percent from the previous 6.0 percent for next year.

The upward revision reflects the stronger-than-expected momentum of the Chinese economy in 2016 and the anticipation of continued policy support, said the IMF.

Obstfeld said China’s desirable rebalancing process continues, as seen in a declining current account surplus and an increased share of services in its gross domestic product (GDP).

“Obviously, the leadership has made impressive reforms,” said Obstfeld. “With those reforms, we are confident in China maintaining stability down the road.”

The IMF is not the only international institution which is confident about China’s economic growth.

The World Bank said in a report earlier this year that China’s economy will continue sustainable growth as it is rebalancing from manufacturing to services.

In its flagship Global Economic Prospects report, the Washington-based lender expected the Chinese economy to grow 6.5 percent in 2017 and 6.3 percent in 2018, unchanged from the forecast it made in June 2016.

Macroeconomic policies are expected to support China’s key domestic drivers of growth despite softness of external demand and overcapacity in some sectors, said the bank.

It expected that China’s efforts to rebalance its economy from industry to services, and from investment to consumption will continue moderate progress.

According to the World Bank, China could secure a sustainable growth in the medium term while avoid a sharp slowdown, if the country continues to push forward additional fiscal reforms, further state-owned enterprises reforms and land and labor market reforms.

In a report published last week, the World Bank said China’s transition to slower but structurally rebalanced growth has continued, and it expected the Chinese economy to slow gradually as it rebalanced toward consumption and services.

“Chinese policymakers will manage the balancing act,” which means that they will continue with long-term structural reforms, support new growth engines and facilitate the economy transition towards services and high value-added products, said Sudhir Shetty, chief economist of the World Bank’s East Asia and Pacific Region.

While raising its forecast for global economic growth, the IMF also warned of the downside risks facing the global economy. “Risks remain skewed to the downside, however, especially over the medium term, with pervasive uncertainty surrounding policies,” said the report.

It warned that inward-looking policies threaten global integration and the cooperative global economic order, a faster-than-expected pace of interest rate hikes in the United States could tighten global financial conditions, and an aggressive rollback of financial regulation could spur excessive risk taking and increase the likelihood of future financial crisis. “The world economy may be gaining momentum, but we cannot be sure that we are out of the woods,” said Obstfeld.