BEIJING (REUTERS) - The International Monetary Fund cut its growth forecast for China this year to 7.75 per cent from 8 per cent, citing a weak world economy and exports, adding to concerns that the world's second-largest economy is losing momentum.
The IMF move follows a series of lowered 2013 growth estimates for China by private economists after soft factory output and investment performance data for April and weak factory activity in May.
The IMF's forecast is above the government's target of 7.5 per cent, but in line with recent revisions, including Bank of America-Merrill Lynch, which pared its forecast this month to 7.6 per cent from 8 per cent, and Standard Chartered, which cut its estimate to 7.7 per cent from 8.3 per cent.
ING last month reduced its prediction to 7.8 per cent from 9 per cent.
"The pace of (growth in) the economy should pick up moderately in the second-half of the year, as credit expansion gains traction in line with a projected mild pick-up in the global economy," David Lipton, the first managing director of the IMF, told a media briefing.
The IMF said China's priority should be on reining in social financing growth, which has expanded at double-digit rates in recent months, leading to concerns that the country's fast credit supply may fuel inflation in future.
"China's economy faces important challenges. In particular, the rapid growth in total social financing raises concern concerns about the quality of investment and its impact on repayment capacity," said Lipton.
"If growth were to slow sharply below this year's target, then on-budget fiscal stimulus should be used, focusing on measures that support household incomes and consumption, such as reductions in social contributions, subsidies to consumption, or targeted social safety net spending," Lipton said.
Unlike previous years when any wobble in the Chinese growth engine was countered with heavy government intervention to stabilise activity, the market consensus this time is no big-bang stimulus as policymakers have more tolerance of a slow economic growth speed to improve economic quality.
China's Premier Li Keqiang said separately on Wednesday that that the country's economic recovery still faces uncertainties, but the key to maintaining stable growth is building up the service industry.
"China has great potential to develop its service industry, because we have 1.3 billion people and the demand for services is huge," Li said in a speech at the opening of a trade fair in Beijing.
The service industry made up only 44.6 per cent of 2012 GDP and created only 36 per cent of the total jobs in the country, both of which are lower than many countries.
"Therefore, it is a significant task for China to speed up the development of service industry," Li said.
The IMF said inflation in China would likely pick-up to 3 per cent by the end of 2013 while the current account surplus is expected to equivalent to 2.5 per cent of gross domestic product(GDP) this year, compared with a 2.6 per cent of surplus-to-GDP ratio in 2012.
The IMF also said renminbi is "moderately undervalued"relative to a basket of currencies.