IMF's China outlook could affect others

Updated: 2015-01-21 13:21

By Jack Freifelder in New York(China Daily USA)

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A lowering of China's growth rate for 2015 by the International Monetary Fund could have a big impact on the fiscal outlook for a number of the world's emerging economies, according to a US-based economics expert.

"China's slowing down and rebalancing away from investments has a significant effect on other countries," David Dollar, a senior fellow at the Brookings Institution's John L Thornton China Center in Washington, told China Daily on Tuesday.

"For a long time, China's demand has been driving prices not just of energy but also iron, copper and many other primary products," Dollar said. "Now I think what's going to happen is the demand coming from China is going to be much more muted."

On Monday the IMF released its January 2015 World Economic Outlook (WEO) report, which lowered the global economic growth forecast for 2015 and 2016. IMF projections expect the world economy to expand by 3.5 percent in 2015 and 3.7 percent in 2016, picking up from a 3.3 percent growth figure in 2014.

In the IMF's October 2014 WEO report, global growth was predicted at 3.8 percent (2015).

China's 2014 economic growth edged down to a 24-year low of 7.4 percent from 7.7 percent in 2013, the first time that it missed the government's annual target in 16 years, according to data from the National Bureau of Statistics released on Tuesday.

Zhu Haibin, chief China economist at JPMorgan Chase & Co, said: "The economic slowdown is expected and desirable, as it is driven mainly by a slowdown in fixed investment, especially in real estate and manufacturing investment, which face oversupply problems."

Growth in China, the world's second-largest economy, is expected to slow further to 6.8 percent in 2015 as its economy reorients toward consumption and away from investment, the IMF said.

The Washington-based organization said a boost from low global crude oil prices would be negated by dim economic outlooks for China, the European area, Japan, Russia and oil producers.

"Global growth will receive a boost from lower oil prices," the IMF said. "But this boost is projected to be more than offset by negative factors, including investment weakness in many advanced and emerging market economies. Slower growth in China will also have important regional effects, which partly explains the downward revisions to growth in much of emerging Asia."

The US is the only major country to have its growth forecast raised by the IMF's 2015 outlook report. It put the 2015 growth estimate at 3.6 percent, up from October's forecast of 3.1 percent.

The gains in the US were buoyed by "lower oil prices, more moderate fiscal adjustment, and continued support from an accommodative monetary policy stance," the report said.

Barry P. Bosworth, an economist with the Brookings Institution, told China Daily that he was "surprised" by the magnitude of the IMF's downgrade for China and the increase for the US.

Bosworth said he had expected to see a "bigger burst from lower oil prices" and a "reduced fear of higher US interest rates" ahead of the IMF's latest outlook report.

"It is also notable that emerging countries outside China are revised down," Bosworth wrote in a Tuesday e-mail to China Daily.

Oil exporter Russia saw the sharpest downward revision of any other country by the IMF, to a contraction of 3 percent from a previous forecast for a 0.5 percent expansion. Meanwhile, Japan and the euro zone are expected to grow at a rate of 0.6 percent and 1.2 percent this year, respectively.

Olivier Blanchard, the IMF's chief economist, said that emerging market countries face two main challenges heading into 2015: high interest rates in the US and a decrease in potential economic growth.

"Emerging market countries … are going to have tighter financial conditions," Blanchard said in a Jan 19 interview on the IMF website. "In most cases, it means thinking of structural reforms. A particular example is China, which is trying to change its growth mold.

"Restoring growth is a good thing," Blanchard said, and it shows that the policymakers in China "have decided to reduce" some of the dangers they were facing.

"Chinese policymakers are also trying to reorient growth from investment to consumption," Blanchard said. "All of this is desirable but it's leading to a lower growth rate. That's a challenge for them."

Dollar, with Brookings, said at the end of the day it's important to "not put all of this on China".

"A lot of what's happening right now is new supply coming online just at the same time that China's demand is becoming muted to some extent," he said. "Those price declines have a significant effect on developing countries because many are net exporters of primary products.

"This big decline in oil prices is basically good for the United States, Japan, China, Europe, the four big economies in the world that are all big net importers," Dollar said. "This decline in prices is good and that should give a positive jolt to growth, but this is going to be a difficult period for the primary exporting countries."

Chen Jia in Beijing contributed to this story.

(China Daily USA 01/21/2015 page1)