Downturn in Europe could cut growth by half, warns IMF
By Wang Yanlin |
February 7, 2012, Tuesday
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Print Edition
Print Edition
CHINA needs to reduce its reliance on external demand to lessen the impact of a possible worsening debt crisis in Europe, the International Monetary Fund said yesterday.
A sharp downturn in Europe could cut China's economic growth rate nearly in half, it said.
The IMF forecast 8.2 percent growth this year for China but said that could be reduced by up to 4 percentage points if Europe's crisis causes large declines in credit and output.
"The global economy is at a precarious stage and downside risks have risen sharply due to worsening conditions in the euro area," it said in a report.
The World Bank told China and other developing countries last month they should prepare for a global slump that it warned might hit them harder than the 2008 economic crisis.
China rebounded quickly at the time and its economy expanded by 9.2 percent last year, but growth has declined as the government tightened credit and investment curbs to prevent overheating.
China has responded to a plunge in global demand by promising bank lending and other aid to struggling entrepreneurs.
Last month, the IMF downgraded its 2012 projection for global growth to 3.3 percent from the 4 percent predicted just three months ago, and warned it could come in about 2 percentage points below that forecast if European leaders allowed the crisis to fester.
It also downgraded China's growth projection for 2012 to 8.2 percent, compared to 9 percent.
"Given the uncertain global outlook, some modest fiscal support to the economy is warranted," the IMF said. That may include a lowering of social contributions and consumption taxes, an increase in benefits (particularly to the poor and unemployed), and an acceleration of public investment in social housing.
"If the unfortunate downside scenario in Europe becomes a reality, China should respond with an even more significant fiscal package that can be executed through central and local governments," it said in the report.
China's economic growth slowed to 8.9 percent from a year earlier in the final quarter of 2011.
China's housing market won't become a threat to China's economy, the IMF said, noting that it was beginning to deflate, with price growth slowing and transaction volumes down.
It said underlying investment remained healthy, in part due to the government's efforts to expand the supply of social housing.
"At present, there seems little reason to back-pedal on the measures put in place to deflate the market. Indeed, a modest decline in property prices should be regarded as a welcome development." the IMF said.
A sharp downturn in Europe could cut China's economic growth rate nearly in half, it said.
The IMF forecast 8.2 percent growth this year for China but said that could be reduced by up to 4 percentage points if Europe's crisis causes large declines in credit and output.
"The global economy is at a precarious stage and downside risks have risen sharply due to worsening conditions in the euro area," it said in a report.
The World Bank told China and other developing countries last month they should prepare for a global slump that it warned might hit them harder than the 2008 economic crisis.
China rebounded quickly at the time and its economy expanded by 9.2 percent last year, but growth has declined as the government tightened credit and investment curbs to prevent overheating.
China has responded to a plunge in global demand by promising bank lending and other aid to struggling entrepreneurs.
Last month, the IMF downgraded its 2012 projection for global growth to 3.3 percent from the 4 percent predicted just three months ago, and warned it could come in about 2 percentage points below that forecast if European leaders allowed the crisis to fester.
It also downgraded China's growth projection for 2012 to 8.2 percent, compared to 9 percent.
"Given the uncertain global outlook, some modest fiscal support to the economy is warranted," the IMF said. That may include a lowering of social contributions and consumption taxes, an increase in benefits (particularly to the poor and unemployed), and an acceleration of public investment in social housing.
"If the unfortunate downside scenario in Europe becomes a reality, China should respond with an even more significant fiscal package that can be executed through central and local governments," it said in the report.
China's economic growth slowed to 8.9 percent from a year earlier in the final quarter of 2011.
China's housing market won't become a threat to China's economy, the IMF said, noting that it was beginning to deflate, with price growth slowing and transaction volumes down.
It said underlying investment remained healthy, in part due to the government's efforts to expand the supply of social housing.
"At present, there seems little reason to back-pedal on the measures put in place to deflate the market. Indeed, a modest decline in property prices should be regarded as a welcome development." the IMF said.
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