World Economy

IMF: China’s 2015 Growth ‘Well Above’ 7%

IMF: China’s 2015 Growth ‘Well Above’ 7%IMF: China’s 2015 Growth ‘Well Above’ 7%

China’s economy will likely grow faster than previously thought in 2015, the International Monetary Fund said on Wednesday, downplaying the risks of the cooling property market in the world’s second-largest economy.

Economic growth in China will likely be “well above” 7 percent next year, Changyong Rhee, director of the Asia and Pacific department at the IMF, told a briefing in Manila, Reuters reported.

His remarks suggested the global lender’s will upgrade its growth forecast for the country due next month from the current 7.1 percent estimate it made in July.

The IMF has a 7.4 percent growth forecast for China for 2014, slightly below the government’s official target of around 7.5 percent.

“We expect they have many tools to maintain the growth rate well above 7 percent next year,” Rhee said.

 Biggest Risk

Many economists see the rapidly slowing property market as the biggest risk facing China’s economy. Home prices, sales and new construction are all falling, and increasingly dragging on related sectors from home appliances to glass, steel and cement.

Analysts believe Beijing will roll out further stimulus measures in coming months to avert a deeper economic slowdown, including more help for would-be home buyers.

However, Rhee said the IMF does not expect China’s cooling property market to become a serious problem, saying it sees “a gradual adjustment” rather than a hard landing.

“Evidence shows there will be a gradual adjustment in real estate market but we have to watch if that baseline scenario will hold,” Rhee said.

A slowing Chinese economy should not be looked at as a “pure risk” as it gives other countries in Asia a better chance at competing with Beijing and attracting foreign direct investments, Rhee added.

Growth in Asia will likely remain robust, Rhee said, putting countries in the region in a better position to withstand the impact of higher interest rates in the United States in terms of capital outflows and market volatility.

“We have to be prepared, but the impact on Asian economies will be much more minimal compared with its possible impact on other regions. We cannot be complacent but I think Asian countries are well prepared,” Rhee said.

  Manufacturing Index

China’s flash Purchasing Managers Index rose moderately in September, but it is unlikely investors are going to get too excited about Tuesday’s data point from HSBC, Forbes reported.

Manufacturing PMI for China rose to 50.5 this month from 50.2 in August. Production-related components of the PMI all improved in the flash release. The employment sub-index worsened, but there are few signs of broader labor market weakness in China. Job losses seem mostly confined to the labor-intensive, export-oriented manufacturers who are strongly represented in the HSBC PMI survey sample.

“September’s modestly better flash PMI report is consistent with further improvement in China’s export markets,” said Bill Adams, senior international economist for PNC Financial Services in Pittsburgh. “At the very least, the manufacturing PMI signaled no deterioration from August. China is not going off a cliff,” he said.

Sadly, this seems to be the prevailing short-term take on China. The good news is that China is not crashing.