Source: Bloomberg
China’s economic expansion would be cut almost in half if Europe’s debt crisis worsens, a scenario that would warrant “significant” fiscal stimulus from the nation’s government, the International Monetary Fund said.
Based on the IMF’s “downside” forecast for the global economy, China’s growth could drop by as much as 4 percentage points from the fund’s current projection, which is for 8.2 per cent this year, the organisation said in a report released Monday by its China office in Beijing.
The outlook expands on the IMF’s warning last month that the world could plunge into another recession if Europe’s woes deepen. Premier Wen Jiabao reiterated last week his government will “fine-tune” policies to support growth amid the region’s debt crisis and the cooling domestic property market.
“China’s growth rate would drop abruptly if the euro area experiences a sharp recession,” the Washington-based IMF said. “However, a track record of fiscal discipline has given China ample room to respond to such an external shock.”
The government should cushion the impact of a deeper slowdown with measures including tax cuts that amount to about 3 per cent of gross domestic product, it said.
Asian stocks climbed after data February 3 showed employers in the US added 243,000 jobs in January, exceeding the most optimistic estimates in a Bloomberg News survey. The MSCI Asia Pacific Index rose 0.4 per cent as of 6:28 pm in Tokyo.
China’s economy is unlikely to experience a “hard landing” and the nation has room to boost fiscal spending, Anoop Singh, director of the IMF’s Asia-Pacific department, said last week in Washington. China should strengthen domestic consumption, he said.
China’s GDP expanded 8.9 per cent in the final three months of 2011 from a year earlier, the least in 10 quarters, and down from a 9.1-per cent gain in the third quarter. Growth may slow to 7.5 per cent this quarter, Nomura Holdings Inc forecasts.
The IMF said in its report Monday that “monetary conditions should be fine-tuned to allow for some modest additional credit to the economy,” echoing Wen’s pledges last month. At the same time, “residual concerns about credit quality and bank balance sheets from the 2009-10 stimulus would mean that any monetary response to an unfolding European crisis should be limited,” the fund said.
Chinese officials have held off a cut in lenders’ reserve requirements that banks including Barclays Capital Asia Ltd had forecast for January and have also so far refrained from lowering interest rates to support growth. Wen said last month that curbs on the property market will be maintained to bring prices down to a reasonable level.
