China’s economic growth rate for this year has been raised by the International Monetary Fund (IMF), which believes a way out of the unprecedented coronavirus crisis is becoming “increasingly visible” around the world.
The Washington-based organisation on Tuesday raised China’s economic growth estimate for 2021 to 8.4 per cent, 0.3 percentage points higher than in its January prediction, with the 2020 estimate left unchanged at 5.6 per cent.
China’s economy grew by 2.3 per cent during a coronavirus-hit 2020, while Beijing has set an economic growth target of “above 6.0 per cent” for 2021, although many economists expect this to be exceeded.
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China’s updated outlook reflected the anticipated global recovery from the Covid-19 pandemic.
“With global growth being stronger, you have more exports. The US rescue plan also will increase demand for China’s goods,” said Gita Gopinath, the IMF’s chief economist and director of research.
The IMF, however, viewed China’s growth as somewhat unbalanced, Gopinath said: “It’s still very heavily reliant on public investment. And private consumption has not recovered as fast as we would have hoped.”
To “make this a durable recovery, our hope is that fiscal measures and other support measures would work in the direction of supporting the recovery coming from the private sector, as opposed to the public sector”, she added.
Overall, the IMF raised its 2021 global growth estimate by 0.5 percentage points to 6.0 per cent, and its 2022 projection by 0.2 percentage points to 4.4 per cent.
The outlook presents daunting challenges related to divergences in the speed of recovery both across and within countries and the potential for persistent economic damage from the crisis
The IMF, though, pointed to the large divergence in terms of the recovery speed of different economies, the impact from recent US Federal Reserve policies as well as unsolved trade tensions as reasons underlying a fragile post-coronavirus economic recovery, which means the health and economic crisis could still take years to resolve.
“We are now projecting a stronger recovery in 2021 and 2022 for the global economy compared to our previous forecast. Nonetheless, the outlook presents daunting challenges related to divergences in the speed of recovery both across and within countries and the potential for persistent economic damage from the crisis,” said Gopinath in the latest “World Economic Update”, titled “Managing Divergent Recoveries”.
“If increases reflect a sense that advanced economy monetary policy stances will need to tighten abruptly as the recovery gathers momentum, then there could be adverse spillovers to emerging market and developing economies, particularly among those with high debt and large financing needs.”
The United States is expected to surpass its pre-coronavirus gross domestic product level this year, with the IMF estimate increased by 1.3 percentage points to 6.4 per cent; the Eurozone is expected to grow by 4.4 per cent this year, up from a forecast of 4.2 per cent in January.
“A high degree of uncertainty surrounds these projections, with many possible downside and upside risks. Much still depends on the race between the virus and vaccines. Greater progress with vaccinations can uplift the forecast, while new virus variants that evade vaccines can lead to a sharp downgrade,” added Gopinath.
Emerging markets, including China, are keeping an especially close eye on global economic recovery speeds, which have raised the prospect of divergent policy stances.
This is particularly true when considering the sharp increases in 10-year US treasury note yields that have been fuelled by market expectations that the US Federal Reserve could quicken the pace of policy normalisation to keep inflation in check.
“Major central banks should provide clear guidance on future actions with ample time to prepare to avoid taper-tantrum kinds of episodes as occurred in 2013,” Gopinath said.
“As the recovery progresses and labour market conditions normalise, targeted support should be gradually scaled back to avoid sudden cliffs.”
In addition to working together to ensure widespread vaccination roll-outs around the world, the IMF called for progress to be made on resolving trade and technology tensions.
“Global disputes over trade more broadly remain unresolved. These include the failure to reconcile a deadlock on appointments to the World Trade Organization Appellate Body and trade tensions between the United States and China,” it said.
The Biden administration has so far refused to cut tariffs on nearly US$370 billion of Chinese merchandise that were put in place by the Trump administration, with China also keeping its retaliatory duties in place.
According to the IMF, more trade barriers could emerge given the need to protect domestic workers, while risks of protectionist tendencies surrounding technology are emerging.
The IMF estimates that global trade volume will increase by 8.4 per cent year on year in 2021, after a fall of 8.5 per cent in 2020. It, though, did lower the export growth of emerging markets and developing economies by 0.7 percentage points to 7.6 per cent this year.
Additional reporting by Jodi Xu Klein
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