Sign in | Join free

Imf sees european debt clouds over china

Imf sees european debt clouds over china Source:
Date: 07-02-2012
Visits: 226
Very Poor

BEIJING - China's economic growth will be cut almost in half if Europe's debt crisis worsens, a scenario that would warrant significant government stimulus, the International Monetary Fund (IMF) said yesterday.

The IMF forecast comes a day after Singapore's Prime Minister Lee Hsien Loong warned that the world's second-largest economy might face a "rough landing".

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 yesterday 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.

Chinese Premier Wen Jiabao reiterated last week his government will "fine-tune" policies to support growth amid Europe'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."

In an interview that was broadcast on CNN on Sunday, Singapore's PM Lee said China's economy might experience a "rough landing, but they will get through it".

He said: "I can't say that there will be no bumps in the short-term. But I think in the long-term, the trend will be up. They've built a lot of infrastructure. They have built a lot of capacity in many industries, autos, some of the electronics industries. But it's an economy which is growing very rapidly, urbanising very rapidly, needing a lot of facilities, whether it's roads, hospitals, schools, houses, by the millions."

China's Shanghai Composite stock index gave up early gains to close flat yesterday. A strong United States January job report had boosted sentiment before profit-taking set in after the IMF news.

Elsewhere in Asia, Hong Kong's Hang Seng Index was down 0.2 per cent, Japan's Nikkei 225 was up 1.1 per cent and Singapore's Straits Times Index rose 0.8 per cent.

China rebounded quickly from the 2008 global crisis and its economy expanded by a healthy 9.2 per cent last year but growth has declined as Beijing tightened credit and investment curbs to prevent overheating.

The IMF last month cut its 2012 forecast for China's growth from an earlier estimate of 9 per cent. It estimates expansion of 8.8 per cent next year.

China's GDP grew 8.9 per cent in the final three months of last year 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 forecast.

The IMF said in its report yesterday that the Chinese government should cushion the impact of a deeper slowdown with measures including tax cuts that amount to 3 per cent of gross domestic product. It said that "monetary conditions should be fine-tuned to allow for some modest additional credit to the economy".

Chinese officials have held off a cut in lenders' reserve requirements that banks including Barclays Capital Asia had forecast for last month and have also so far refrained from lowering interest rates to support growth.

The IMF added that while China's banks might be shielded by barriers that keep its financial system sealed off from global capital flows, a sharp fall in Western markets might disrupt trade credit.

Yesterday's IMF report also said "upward pressures on the yuan have diminished recently" and that the "pace of reserves accumulation should resume this year".

One-year yuan non-deliverable forwards traded at 6.2755 per US dollar yesterday, a spread of 366 pips over onshore spot, implying a 0.6 per cent appreciation over the next year. China's foreign exchange reserves, the world's largest at US$3.18 trillion, fell for the first time in more than a decade in the fourth quarter of 2011.

Separately, Mr Markus Ederer, the European Union's ambassador to China, said yesterday the country might become the continent's top export market this year, surpassing the United States, the world's largest economy.

like 414 Unlike 46
Users Comments
No comments to display
Are you sure you want to delete this comment.
Add your comment
User Name:
Email: Will not be published
Rate This article:
Maximum 3500 characters
Your name
Your email address
Your friend email address
  • /images/ourservices/125-600/pricetrend.jpg
  • /images/ourservices/125-600/product.jpg
  • /images/ourservices/125-600/videos.jpg
Suntex Asia Limited
32366 Users
have already joined Shouldn't you?
Full registration will provide you access to all our free services. It takes only one minute and it is free Go here
Quick registration (it's free)
Accesss to some of our free services
Select membership
Full Name
User Name
Enter the code
(Note: If you can't read the letters, reload the page to generate a new one.)
terms and conditions
Members Login
Already registered
Forgot your password
golden fees
Enter your e-mail address
Choose your room