China’s Crisis Poses Major Threat to Global Economy, Says IMF

China’s  slowdown in economic growth may have further repercussions for the global economy, the International Monetary Fund has warned.

A new report published by the international organisation stated that “Global growth remains moderate, reflecting a further slowdown in emerging economies and a weak recovery in advanced economies.” 

Among of the key factors in this situation is the slowdown in the Chinese economy, maintaining that although effects were expected, they may have a bigger impact than what was previously forecasted.

The report stated: “China’s transition to a lower growth, while broadly in line with forecasts, appears to have larger-than-previously-envisaged cross-border repercussions, reflected in weakening commodity prices and stock prices.”

When predicting the future economic outlook for China the report state that “growth is expected to decline as excesses in real estate, credit, and investment continue to unwind, with a further moderation in investment growth, especially residential real estate. Policy action will aim at reducing vulnerabilities from recent rapid credit and investment growth, and not at fully offsetting the underlying moderation in activity. Ongoing implementation of structural reforms and lower oil and commodity prices are expected to expand consumer-oriented activities, partly buffering the slowdown.”

The IMF have maintained that the policy priority for China is achieving a smooth transition to more sustainable patterns of growth. “The recent sharp equity market corrections should not discourage the authorities from continuing with reforms to give market mechanisms a more decisive role in the economy, eliminate distortions, and strengthen institutions. The new mechanism for determining the central parity of the renminbi appears a welcome step towards achieving an effectively floating exchange rate system in the next couple of years.”

To read the report in full, please click HERE.