IMF Expects China's Economy to Continue Growing Strongly

The International Monetary Fund (IMF) projected Wednesday that China's economy would continue growing strongly despite the heightened risks of deeper global downturn following the terror attacks in the United States.

The IMF projected China's economy to increase 7.5 percent in 2001, up from its previous forecast of 7 percent in May. That was in contrast with the downward revisions of the projections for the world economy and most major economies.

The IMF projected the world economy to grow by only 2.6 percent this year, down 0.6 percentage point from its May forecast of 3.2 percent.

"China is expected to continue growing strongly in 2001, in part because total exports, and especially exports of high technology goods, comprise a much lower share of GDP (gross domestic product) than in most other emerging Asian economies," the IMF said in its World Economic Outlook.

Although exports have slowed markedly in 2001, indicating that China is not immune to the global slowdown, overall activity remained strong in the first half of 2001, led by buoyant private consumption and strong public investment, the IMF said.

"China's near-term vulnerability to external shocks is also limited both by its high level of foreign reserves and by strong inflows of foreign direct investment, running at around 40 billion U.S. dollars a year since 1996 and showing a strong pickup in commitments over the past year," the report said.

The IMF said the key economic challenges facing China remain to strengthen the banking sector, move forward with enterprise restructuring, and over the medium term, strengthen the fiscal position to cover the costs of bank and corporate reforms and meet outstanding pension liabilities.

The IMF projected the country's economy would grow 7.1 percent in 2002.

World Economy to Grow 2.6 Percent in 2001

The International Monetary Fund (IMF) projected Wednesday that the world economy would grow by only 2.6 percent in 2001, much slower than the 4.7 percent last year, as it warned that the terrorist attacks in the United States heightened the risk of a worldwide downturn.

"There is no doubt that the attack is having a negative effect on activity now in many regions of the globe, and that it has increased what were already significant downside risks to the short-term global outlook, including for emerging market economies," said Kenneth Rogoff, the IMF's chief economist, at a press conference releasing the IMF's World Economic Outlook.

Rogoff noted that since the IMF's last World Economic Outlook in April, prospects for the global economy have continued to weaken.

The 2.6 percent growth rate would be the poorest showing since 1993 and down 0.6 percentage point from the IMF's previous forecast of 3.2 percent growth for 2001.

According to the IMF projections, which it finished before the terror attacks, the world economy will increase 3.5 percent, lower than the 4.1 percent the IMF projected in May.

Rogoff said the effects of the September 11 events on the projected global growth in 2001 is likely to be moderate, but in 2002 the global growth "is likely to be rather lower than the 3.5 percent presently projected."

Rogoff, however, said there are reasons to be optimistic that a global recession can be avoided. He cited the sizable government stimulus that has been injected through interest rate cuts in the United States and many other countries and large increases in U.S. spending for reconstruction and increased security.

The IMF projected the U.S. economy would grow a weak 1.3 percent this year, 0.2 percentage point lower than its May forecast and down from 4.1 percent in 2000. For 2002, the IMF forecast U.S. growth would rebound slightly to 2.2 percent.

The direct impact of the terror attacks on the overall U.S. economy is still relatively moderate, even though certain industries have been hard hit, particularly airlines, insurance, and tourism, Rogoff said.

"Now, of course, the potential indirect effects of the attacks -- on consumer sentiment and spending, on business confidence and on risk aversion -- are likely to be significantly more important," he said. "These are much more difficult to assess and will depend importantly on how non-economic events evolve in the aftermath of the attack."

The IMF projected the Japanese economy would decline 0.5 percent this year and manage only a tiny 0.2 percent gain in 2002.

The euro area will see growth of 1.8 percent this year and 2.2 percent in 2002, the IMF estimated. For Germany, the largest economy in Europe, the IMF put growth this year at 0.8 percent, 1.1 percentage point below its May projection. It forecast Germany would grow by 1.8 percent next year.

In one of its few upward revisions, the IMF said it expected China's economy would grow by 7.5 percent this year, up by 0.5 percentage point from the May forecast, and by 7.1 percent in 2002.

Growth in developing countries was expected to be 4.3 percent this year and 5.3 percent in 2002. Last year, the developing world posted a growth rate of 5.8 percent.






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