Anticipated growth in emerging surplus economies, including China's, is "expected to decline" and output gaps in advanced economies remain negative, the International Monetary Fund said in a report released ahead of this weekend's G-20 finance meeting in Australia.

Global recovery from the recession has been "disappointingly weak," and G-20 countries are still producing "far below" the longer-term trend, the report said.

While global economic activity picked up in the second half of 2013 due to strengthening advanced economies, trade volumes remain below trend, decline in unemployment and strong private demand "did not materialize," the IMF said Wednesday.

Against the backdrop of slower-than-anticipated global growth, emerging economies are experiencing bouts of volatility in the financial sector, influenced in part by weakening sentiment toward emerging economies, the IMF said.

"Specifically, China's shadow banking and weaker-than-expected PMI data, continued or rising political tensions (Thailand, Turkey, South Africa, and Ukraine), and Argentina's depreciation all contributed to the negative sentiment against the broader context of continued Fed tapering," the IMF explained.

China's latest PMI figure showed a half-a-point drop in January at 50.5, which was a six-month low and added further concern about the country's slowing economy. Though China's statistics bureau said that the number was in line with expectations due to an earlier start to the Lunar New Year, analysts are bracing for further GDP deceleration in 2014.

China needs to boost domestic demand and allow more flexibility in its exchange rate "by reducing intervention over time," according to the report.

Volatilities related to the US Federal Reserve unwinding from unconventional money policy have "provoked sharp price movements in emerging markets" and rapid increases in both domestic credit and foreign-exchange borrowing by corporations "could amplify the impact of shocks," the IMF said.

The Federal Reserve announced in December that it would scale back its bond-buying program to $75 billion a month, and then decided at a January meeting to further cut its purchases to $65 billion. According to figures released by the US Treasury, this week, China dropped $47.8 billion of treasuries in December, the largest reduction since December 2011.

But China accumulated a record amount of US reserves in 2013 and figures announced by the People's Bank of China in January showed that China had another $500 billion in reserves in 2013.

The IMF said it expects that growth in China will moderate slightly in 2014-15, "in part because of policy measures aimed at slowing credit growth and raising the cost of capital," and that slowdown in China might be "desirable" as the country steers away from investment to consumption, as outlined by the government's planned reforms.

"In some cases (e.g. China), the implementation of rebalancing reforms could somewhat slow near-term growth, but they are vital in containing vulnerabilities and achieving sustainable growth," the IMF authors wrote.

On Feb 22 and 23, more than 2,000 finance ministers and central bank governors along with their delegations from all G20 nations will meet in Sydney. Representatives from the IMF and the World Bank will also be present. Jack Lew, the US Treasury secretary, as well as senior Chinese officials will be attending the meetings.

amyhe@chinadailyusa.com

(China Daily USA 02/20/2014 page1)