IMF pares growth projections for China

The International Monetary Fund pared its growth forecast for China this year to 7.75 per cent from 8 per cent, citing a weak world economy and exports, which added to concerns that the second-largest economy in the world was losing steam.

The forecast from the IMF comes following a series of lowered 2013 growth estimates for China by private economists following soft factory output and investment performance data for April coupled with weak factory activity in May.

Though the IMF forecast was above the government's target of 7.5 per cent, it was in line with recent revisions, including that of Bank of America-Merrill Lynch, which cut its forecast this month to 7.6 per cent from 8 per cent, and Standard Chartered, which reduced its estimate to 7.7 per cent from 8.3 per cent.

Last month, ING cut down 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.

According to the IMF, China's priority needed to be on reining in social financing growth, which had expanded at double-digit rates in recent months, triggering concerns the country's fast credit supply might 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.

China, the world's second-largest economy is considered a potential driver of global recovery in the face of the eurozone's ongoing debt crisis and unsteady growth in other regions.

The IMF's World Economic Outlook report released last month had projected growth in the country at 8.0 per cent this year and 8.2 per cent for 2014, both of which had themselves, been scaled down from previous ones made in January.

China's economic growth stood at 7.8 per cent in 2012 -- its slowest pace in 13 years, registering a surprisingly weak 7.7 percent expansion in the first three months of this year, which was well below forecasts.

According to Lipton, weakness in the global economy was a contributory factor in the slowdown in China's export growth.

The lowered gross domestic product forecast "comes essentially from looking at the global economy and the pace of growth in the global economy and the demand that derives from that growth for Chinese exports", he said.

"Chinese export growth has been, after years and years of very rapid growth, very slow because of the state of the global economy and we now are taking our projections of the global economy into effect."