The IMF revised up its forecast of China’s 2016 GDP growth by 0.1% to 6.6% on July 19, citing the country’s “recent policy support”, including interest rate cuts, fiscal expansion, and investment increases.
Analysts said China will keep open the option of rendering more policy support if downward growth pressure intensifies.
In its latest update to its World Economic Outlook released in April, the IMF said China’s near-term outlook has improved since its “benchmark lending rates were cut five times in 2015, fiscal policy turned expansionary in the second half of the year, infrastructure spending picked up, and credit growth accelerated”.
The forecast makes China one of the fastest-growing major economies despite the many uncertainties that have shocked the global markets recently, such as the UK’s decision to leave the European Union and the possible interest rate hikes by the US monetary policymakers.
The IMF also said China’s growth could be 6.2 percent year-on-year in 2017.
Despite the IMF’s upward adjustment, analysts said China still faces severe challenges as it tries to anchor growth in the second half.
“In the second half, China faces some difficulties as it tries to achieve the whole-year growth target of 6.5 to 7 percent,” said Liang Haiming, chief economist of China Silk Road iValley Research Institute, a Beijing-based think tank.
China’s exports will be affected by the fragile global economic and trade growth, making it hard for China’s export growth to pick up in the coming months, he said. Investment, meanwhile, may remain sluggish due to the country’s overcapacity reduction drive and economic restructuring, he said, adding that the rising labor and environmental costs may also keep investors away.
China’s year-on-year GDP growth in the second quarter, which is 6.7 percent, could be the peak this year and may weaken in the fourth quarter, said a report by investment bank UBS’ economists led by Wang Tao.
Moreover, since second-quarter growth is strong, policymakers may refrain from ramping up fiscal or credit policy easing, said the report.
But China will stick to its commitment to delivering its GDP target for this year, push forward structural reforms (including excess capacity reduction and State-owned enterprise reform) and keep open the option of intensifying policy support should downward growth pressures intensify, whether it’s coming from home or abroad.
The IMF said on July 19 the direct impact of the “Brexit” on China is limited, given “China’s low trade and financial exposure to the United Kingdom as well as the authorities’ readiness to respond to achieve their growth target range”.