IMF Downside Scenario for China is 4% GDP Growth but China could counter with Stimulus if Needed

IMF China Economic Outlook, Feb 6, 2012 (10 pages)

A storm emanating from Europe would hit China hard
* China’s growth rate would drop abruptly if the Euro area experiences a sharp recession
* But China has room for a countervailing fiscal response, and should use that space
* Unlike 2009–10, any stimulus should be executed through the budget rather than the banking system

A European depression would send China’s GDP growth down to 4% in 2012 but China could stimulate and get GDP growth back to 7% in 2012-2013.

However, a track record of fiscal discipline has given China ample room to respond to such an external shock. A sizable fiscal stimulus could mitigate, but not fully offset, the decline in its output. In particular, a front-loaded fiscal stimulus of around 3 percent of GDP spread out over 2012–13 would limit the growth decline to around 1 percent, cushioning the adverse effects on employment and people’s livelihoods.

Without a major problem in Europe, the IMF expects China GDP growth to go back up to 8.8% in 2013

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