IMF sees weaker growth in China and the World in 2016 and 2017

China’s economy grew at its weakest pace in a quarter of a century last year, raising hopes Beijing would cushion the slowdown with more stimulus policies, which in turn prompted a rally on the country’s rollercoaster share markets.

Growth for 2015 as a whole hit 6.9 percent after the fourth quarter slowed to 6.8 percent, capping a tumultuous year that witnessed a huge outflow of capital, a slide in the currency and a summer stocks crash.

China’s slowdown, along with the slump in commodity prices, prompted the International Monetary Fund to cut its global growth forecasts again on Tuesday, and it said it expected the world’s second-largest economy to see growth of only 6.3 percent in 2016.

The IMF’s latest global growth forecast revised down—3.4 percent in 2016 and 3.6 percent in 2017.
The IMF sees emerging market and developing economies facing increased challenges. The key risks relate to China slowdown, stronger dollar, geopolitical tensions and renewed global risk aversion.

Data from China’s statistics bureau showed that industrial output for December missed expectations with a rise of just 5.9 percent, while electric power and steel output fell for the first time in decades last year, and coal production dropped for a second year in row, illustrating how a slowing economy and shift to consumer-led growth is hurting industry.

December retail sales growth was also weaker than expected at 11.1 percent last month, disappointing those counting on the consumer to be the new engine of growth.

“While headline growth looks fine, the breakdown of the figures points to overall weakness in the economy,” said Zhou Hao, senior emerging markets economist for Asia at Commerzbank Singapore.

“All in all, we believe that China will experience a ‘bumpy landing’ in the coming year,” he said.

The People’s Bank of China (PBOC) did its bit to calm nerves by keeping the yuan largely steady, setting the currency’s daily midpoint fix at 6.5596 per dollar.

That followed news of plans requiring overseas banks to hold a certain level of yuan in reserves, a move that could raise the cost of wagering on further falls in the currency, which has lost about 5 percent since August.

Tommy Xie, economist at OCBC Bank in Singapore, said he expected more stimulus to the economy from the PBOC, but the stability of the yuan, also known as the renminbi, was critical to maintaining growth.

SOURCES – Reuters, IMF