BEIJING • The International Monetary Fund (IMF) has cut its 2019 economic growth forecast for China to 6.2 per cent on heightened uncertainty over trade frictions, saying more policy easing would be warranted if the Sino-US trade war escalates.
Yesterday's downgrade came just two months after the IMF raised its China forecast to 6.3 per cent from 6.2 per cent, partly on then brightening prospects for a trade deal with the US. It also cut the growth forecast for 2020 to 6 per cent from 6.1 per cent.
A sudden escalation in the trade dispute last month underlined the risks for the world's second-biggest economy from higher US tariffs on billions of dollars of Chinese goods.
Washington has levied higher tariffs on US$250 billion (S$341 billion) of Chinese imports since the middle of last year, accusing China of forced technology transfers and intellectual property theft.
China, which denies the accusations, has retaliated with tariffs on about US$110 billion of US goods.
"Growth is expected to moderate to 6.2 per cent and 6 per cent in 2019 and 2020, respectively," IMF deputy managing director David Lipton said in a statement. "The near-term outlook remains particularly uncertain, given the potential for further escalation of trade tensions."
US President Donald Trump has threatened to slap tariffs of up to 25 per cent on an additional list of Chinese imports worth about US$300 billion.
Economists say the tariffs will curb growth in the US and China, and financial markets worry a protracted dispute could tip the world economy into a recession.
China's central bank has cut the amount of cash that commercial lenders need to set aside as reserves six times since the start of last year, to spur lending and prop up its slowing economy.
Beijing is also fast-tracking infrastructure spending and rolling out tax cuts worth trillions of yuan to support businesses.
"The policy stimulus announced so far is sufficient to stabilise growth in 2019/20 despite the recent US tariff hike," Mr Lipton said, following recent meetings with officials in China.
"No additional policy easing is needed, provided there are no further increases in tariffs or a significant slowdown in growth."
In March, Beijing set a 2019 economic growth target of between 6 per cent and 6.5 per cent. Growth cooled last year to 6.6 per cent, the slowest pace in nearly 30 years.
"Let me make it clear, if tariffs do go up to, say, 25 per cent across the board, growth would be affected significantly," said Mr Kenneth Kang, deputy director of IMF Asia, who led the recent IMF visits.
"In this case, we do see a case for temporary stimulus to support the economy, especially if there is a risk to economic and financial instability."