China may see deeper economic slowdown if Europe crisis worsens
Baku, February 6 (AZERTAC). 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, Bloomberg reports.
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 percent this year, the organization said in a report released today 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 percent of gross domestic product, it said.
Asian stocks climbed after data Feb. 3 showed employers in the U.S. added 243,000 jobs in January, exceeding the most optimistic estimates in a Bloomberg News survey. The MSCI Asia Pacific Index (MXAP) rose 0.4 percent as of 6:28 p.m. 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.
he organization last month cut its 2012 forecast for China`s growth from an earlier estimate of 9 percent. It estimates expansion of 8.8 percent next year.
Singapore`s Prime Minister Lee Hsien Loong said China`s economy may have a “rough landing, but they will get through it,” in an interview that aired yesterday on CNN.
China`s GDP expanded 8.9 percent in the final three months of 2011 from a year earlier, the least in 10 quarters, and down from a 9.1 percent gain in the third quarter. Growth may slow to 7.5 percent this quarter, Nomura Holdings Inc. forecasts.
The IMF said in its report today 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.
Slowing price gains in China “should be viewed as an opportunity to raise” inflation-adjusted interest rates on loans and deposits, so the cost of capital moves “closer to equilibrium” and household incomes increase, the IMF said. That would let the central bank “rely less on administrative limits on credit to achieve its monetary goals,” the fund said.
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