The International Monetary Fund upgraded its 2019 growth forecast for China, citing Beijing’s effort to support the economy and improved outlook for the Asian giant’s tariff fight with the U.S.
IMF said in its latest World Economic Outlook report that China is projected to grow by 6.3 percent this year, higher than the fund’s previous forecast of 6.2 percent. The latest report, released Tuesday, is widely read globally for the IMF’s assessment of the world economy.
China’s economy, the second-largest in the world, grew by 6.6. percent last year — its worst performance in 28 years.
“China has ramped up its fiscal and monetary stimulus to counter the negative effect of trade tariffs. Furthermore, the outlook for US-China trade tensions has improved as the prospects of a trade agreement take shape,” Gita Gopinath, IMF’s economic counselor, wrote in the report.
However, the fund downgraded China’s economic growth for 2020 to 6.1 percent from its previous projection of 6.2 percent.
“While the overall outlook remains benign, there are many downside risks. There is an uneasy truce on trade policy, as tensions could flare up again and play out in other areas (such as the auto industry) with large disruptions to global supply chains. Growth in China may surprise on the downside,” said Gopinath.
China and the U.S. have been engaged in a trade war since last year. The world’s two largest economies have put on hold further increases in tariffs while they negotiate a trade deal. Separately, the U.S. has renegotiated a trade deal with its North American neighbors Canada and Mexico, and Asian ally South Korea. Washington is also seeking to reassess its trading relations with the European Union and Japan.
The IMF has cut its forecast for global growth three times since last October due in part to tensions between the U.S. and its trading partners.
The fund’s slightly more upbeat forecast for China this year came as some economists have also turned optimistic on the Asian economic giant’s growth prospects.
Europe’s largest bank HSBC said China’s growth could hit 6.6 percent this year — higher than the Chinese government’s forecast of between 6.0 percent and 6.5 percent. Citi said there could be “upside risks” to its forecast of 6.2 percent growth in China for this year.
“In the short term, I think there is reason to be optimistic that because of all these easing in policy, it’s starting to have some impact, so we are expecting a stabilization and rebound in the next couple of quarters,” Johanna Chua, Citi’s head of Asia economics and market analysis, told CNBC’s “Street Signs” on Wednesday.
Chinese authorities have implemented both monetary and fiscal measures to support the slowing economy, including tax cuts and reducing the amount of reserves banks must hold. But in the longer term, economic growth will slow down due to changes in demographics and productivity potential, Chua said.
