China’s effort to adapt to changing realities, including its slowdown in GDP growth, is an important factor influencing the global economy in 2016, according to the International Monetary Fund.
While global growth is forecast to rise to 3.4 percent in 2016 and 3.6 percent in 2017, China is expected to continue slowing, with its growth rate dropping to 6.3 percent in 2016 and 6 percent in 2017, the international financial organization said in its World Economic Outlook update on Jan 19.
“The pickup in global activity is projected to be more gradual” than was expected in the October 2015 outlook, “especially in emerging markets and developing economies”, the IMF said.
“Risks to the global outlook remain tilted to the downside and relate to ongoing adjustments in the global economy: a generalized slowdown in emerging market economies, China’s rebalancing, lower commodity prices and the gradual exit from extraordinarily accommodative market conditions in the United States. If these key challenges are not successfully managed, global growth could be derailed,” the IMF said.
Maurice Obstfeld, the IMF’s economic counselor and director of research, wrote in the report: “These long-term actions will actually have positive effects in the short run by increasing confidence and increasing people’s faith in the future.”
Robert Bergvist, chief economist at SEB, said China was experiencing a cyclical slowdown coupled with a structural slowdown, as the economy becomes more mature.
“China’s importance to the global economy and financial markets is growing, and we (the rest of the world) must realize that China is an economic superpower,” Bergvist said. “This is good for the world economy, but it means also that the problems China will experience in the future will be shared by many countries. It’s also interesting how China will use its chairmanship of the G20 in 2016. Beijing holds considerable sway over the global economic policy agenda this year.”
The IMF said China’s overall growth was evolving broadly, as has been forecast, although there has been a faster-than-expected slowdown in imports and exports, in part reflecting weaker investment and manufacturing activity.
The IMF report, which was written as the price of oil was falling but before the latest drop, said the plummeting price of oil had strained the fiscal positions of some producing countries.
“Despite this, China at 6.2 or 6.3 percent will still be a top contributor to global growth. China is already a $10 trillion economy.”
The IMF’s Obstfeld told a news conference in London that China’s rebalancing would have larger spillover effects than previously anticipated.
“Currency management is one area where China’s government needs to have more clear communications with the market,” Obstfeld said.