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IMF lifts 2016 growth forecast for China


05-06-2016 17:24 BJT

The International Monetary Fund at a seminar on Friday affirmed China's efforts to stimulate growth and says that the country's rebalancing of its economy is producing positive effects. 

The IMF says in a fresh report that Asia will remain a strong economic region over the next two years despite anaemic global growth and unstable financial environments. The IMF also says Asia will contribute nearly two-thirds of the world's growth in 2016.

But perhaps the most eye-catching element in the report released earlier this week was that the IMF lifted China's 2016 growth forecast to 6.5 percent from an earlier outlook of 6.3 percent. China has been the only country to receive such treatment from the IMF this year.

Those policies include a mixture of monetary stimulus and structural reforms that reduce overcapacity in outdated industries and excessive inventories in the real estate sector. Schipke says we could begin to see the positive effects soon.

But it's not all a bowl of economic cherries. The IMF did revise downward its medium-term projections for China.

Schipke said monetary stimulus could be a double-edged sword. He said it was especially important to be cautious at this juncture because corporate debt in China has now tripled compared to 2010, and credit is growing twice as fast as nominal GDP. The Chinese government recently launched a debt-to-equity swap program to address that issue. It was a move welcomed by the IMF.

Schipke says that as China's economic influence increases, its financial market movements and economic rebalancing will have significant spill-over effects across Asia. The IMF recommends more policy buffers such as State-Owned Enterprise restructuring and employment projects to accommodate laid-off workers.

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