The International Monetary Fund (IMF) tempers its medium-term forecast for China’s economy. Following the IMF’s Semi-Annual World Economic Outlook update, the institution revised its outlook for the world’s second-largest economy. The report states that slower growth in the country’s manufacturing industry was to blame for the lower estimates.
IMF’s Updated Growth Forecast
The IMF kept its 2021 outlook for China unchanged from 6.5%, but it has downgraded its projected growth for 2022 from 6.0% to 5.8%. The downwardshift comes after a period of sustained growth for China. The new outlook is in line with the official estimate presented by Beijing earlier this year at the National Conference of People’s Representatives.
The IMF report weighed in on the ongoing US-China trade war which has weighed on the Chinese economy. The fund warned that if the conflict continues or escalates, the risk of an economic slowdown in Asia’s largest economy could increase. The report also noted that the key factor in limiting China’s growth potential was the slowing pace of global growth levels.
Impact of Trade War on Growth
Since the trade dispute started in 2018, the US and China have imposed tariffs on each other’s imports. US tariffs on $250 billion of Chinese goods are scheduled to increase from 25% to 30%. It is estimated that a possible increase on the existing tariffs could cut China’s growth rate by around 0.4%.
Analysts have suggested that the trade war has had a serious effect on China’s economic growth. By raising tariffs on imports and restricting access to technology, the impact of the conflict has been felt across all sectors of the economy. Chinese exports to the US have fallen 6.5% year-on-year, and the country’s economic growth has slowed from 6.7% to 6.3% during the same period.
Implications of the Revised Forecast
The revised outlook has negative implications for the global economy, as the Chinese economy is one of the key drivers of global growth. It is estimated that a 0.2% contraction in the Chinese economy could reduce the global growth rate by 0.1%.
The downgrade also casts doubt on the potential for China to become a reliable source of global economic growth. The revised growth forecast suggests that the country’s economy is no longer able to maintain the high rates of growth it has seen in recent years.
Outlook
Despite the IMF’s revision to its outlook, the Chinese government remains confident of the country’s economic prospects in the medium-term. China has approved several stimulus measures to boost the economy, including tax cuts and increased spending on infrastructure projects.
Furthermore, the country is actively pursuing a number of initiatives in order to diversify its economic base, including the Made in China 2025 plan and the Belt and Road Initiative. These long-term projects, combined with steps taken by the Chinese government to boost domestic demand, should provide the basis for sustained economic growth and improved living standards in China.
The IMF’s revised forecast for China’s economy has highlighted the impact of the ongoing US-China trade war. The negative implications for global economic growth are clear, as a slowdown in China’s economy could have a knock-on effect for the wider global economy.
Despite the challenging circumstances, the Chinese government is continuing to pursue a number of measures which should foster sustained economic growth and greater prosperity for the country in the medium-term.
