IMF cuts growth forecast as China's economy stalls and expands at slowest pace in 28 years

The world's second-largest economy posts its slowest economic growth in 28 years. China is grappling with weak investment and faltering consumer confidence while navigating a trade war with Washington at the same time.
Hit by weak domestic demand and a protracted trade dispute with the US, China's GDP for the last three months of last year eased to 6.4 per cent year on year from 6.5 per cent in the third quarter, in line with analysts' expectations.
Hit by weak domestic demand and a protracted trade dispute with the US, China's GDP for the last three months of last year eased to 6.4 per cent year on year from 6.5 per cent in the third quarter, in line with analysts' expectations.PHOTO: AFP

China's GDP growth worst in 28 years; Xi warns country faces deep and complicated changes

Concern about the state of the global economy grew yesterday after China reported that its gross domestic product (GDP) grew at its slowest pace in 28 years last year and the International Monetary Fund (IMF) cut its growth forecast for the world for the second time in three months.

Hit by weak domestic demand and a protracted trade dispute with the United States, China's GDP for the last three months of last year eased to 6.4 per cent year on year from 6.5 per cent in the third quarter, in line with analysts' expectations. This brought growth for the whole year to 6.6 per cent, down from 6.8 per cent in 2017.

The release of the figures coincided with a warning by President Xi Jinping that the country faced deep and complicated changes.

Xinhua news agency quoted him as saying that it must maintain its high alert to "black swan" events and fend off "grey rhino" events. The former refers to an unforeseen occurrence that typically has extreme consequences, while the latter is a highly obvious yet ignored threat.

Mr Xi told a meeting of provincial and department officials that local governments and state organisations should find a balance between stabilising growth and fending off risks, controlling the pace and intensity of such policies. He added that China will maintain economic operations within a reasonable range and also make a thorough evaluation of the potential impact on financial markets when drafting policies. He did not elaborate.

Citing a bigger-than-expected slowdown in China, US-China trade tensions, a possible "no deal" Brexit and weakness in Europe as well as in some emerging markets, the IMF yesterday predicted the global economy to grow at 3.5 per cent this year and 3.6 per cent next year. The figures represented a drop of 0.2 and 0.1 percentage point, respectively, from last October's forecasts.

"After two years of solid expansion, the world economy is growing more slowly than expected and risks are rising," IMF managing director Christine Lagarde told a briefing in Davos, Switzerland, ahead of the gathering of the World Economic Forum. "Does that mean a global recession is around the corner? No. But the risk of a sharper decline in global growth has certainly increased."

 
 
 
 

The IMF head urged policymakers to be ready for a serious slowdown by boosting their economies' resilience to risks.

Reaction in Asian markets to the Chinese figures yesterday was muted, with most posting modest gains. Shanghai and Shenzhen were up 0.56 per cent and 0.61 per cent, respectively, while Hong Kong inched up 0.4 per cent. Tokyo rose 0.3 per cent, and Singapore lost 0.12 per cent.

"China is a big driver of global growth, it is an economy that we should monitor closely. Fortunately, the numbers are within expectations," said UOB economist Suan Teck Kin, referring to yesterday's GDP figures.

As long as it is an orderly deceleration that is not surprising, the financial markets, including Singapore's, will not react negatively, he added.

In an effort to support growth, Beijing has, in recent weeks, loosened credit, rolled out more infrastructure projects and cut taxes.

The IMF yesterday kept its China growth forecast at 6.2 per cent for both this year and next, but said economic activity could miss expectations if trade tensions persist, even with state efforts to spur growth by boosting fiscal spending and bank lending.

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A version of this article appeared in the print edition of The Straits Times on January 22, 2019, with the headline 'IMF cuts growth forecast as China's economy stalls'. Print Edition | Subscribe