In a rare move, finance ministers and central bank governors of leading economies, during the annual Spring Meeting of the IMF and the World Bank in Washington, have voiced concern over the slowdown in China's economy, the world's second largest, which could pose serious challenges to the growth of the global economy.
China, after witnessing nearly three decades of double-digit growth, has been showing signs of a slowdown and India has now replaced China as the fastest growing major economy in the world, DNA reported.
As a result of the economic slowdown, the Chinese economic model, traditionally based on manufacturing, investments and exports, is currently transitioning towards a model that is focused on domestic consumption, services and innovation.
"This rebalancing, which is being implemented in a resolute manner, inevitably affects China's economic partners, even if it is still too early to determine its precise impact. Yet, in any event, we will have to be ready to accompany these developments," the French Finance Minister Michel Sapin said in his address to the IMF on Saturday.
Wolfgang Schauble, the German finance minister, attributed global economic slowdown to the Chinese slowdown. "This slowdown is related to the necessary ongoing transition of the Chinese economy, to lower commodity prices, to earlier exaggerations and domestic shortcomings in some countries, like insufficient structural reforms," he said.
British Chancellor of Exchequer George Osborne underscored the shared interest of the international community in supporting China as it grapples to enhance the resilience of banks and corporates and ensure the sustainability of local government finances and credit.
"Structural measures such as state-owned enterprise and financial sector reforms and steps to reduce excess capacity will support China's economic transition," said US Treasury Secretary Jacob Lew.
Economy Plummeting
China's economy grew 6.7% in the first quarter of 2016, the slowest in seven years, to reach 15.9 trillion yuan ($2.4 trillion), the government said last week.
The growth further narrowed from the previous quarter's 6.8%, which was already the lowest quarterly rate in seven years.
The Chinese economy logged 6.9% last year, the lowest in over two-and-a-half decades. In 2014, China's GDP grew by 7.3%.
Signs of weaker-than-expected Chinese growth, volatility of the Chinese renminbi and persistent capital outflows has led to growing anxiety in the financial markets despite plenty and strong buffers that emerging market and developing countries have accumulated in recent years, said Alexandre Tombini, governor, Central Bank of Brazil.
However, the Chinese leaders attending the meeting tried to assure world leaders in almost every meetings they have had in the past few days and over the weekend that China's economy continues to be strong and there is no cause of worry.
Downside Risks
In a communique issued Saturday during the annual Spring Meetings, the IMF, observing that the global economy continues to expand modestly, said global growth, however, has been subdued for a long time and the outlook has weakened somewhat since October.
Although recent developments point to some improvements in sentiment, financial market volatility and risk aversion have risen, reflecting partly the reappraisal of potential growth, the communique said.
“The significant slowdown in global trade growth also persists. Recoveries in many advanced economies are restrained by a combination of weak demand, low productivity growth and remaining crisis legacies,” the IMF said.
“Activity in emerging market and developing economies has cooled down, although it still accounts for the bulk of world growth. Globally, lower commodity prices have adversely affected exporters, while their short-term growth impact on energy importers has been less positive than expected,” the IMF said.
Downside risks to the global economic outlook have increased since October, raising the possibility of a more generalized slowdown and a sudden pull-back of capital flows, it said.
At the same time, geopolitical tensions, refugee crises and the shock of a potential UK exit from the European Union pose spillover risks, it added.
Reinforcing its commitment to strong, sustainable, inclusive, job-rich and more balanced global growth, the IMF said to achieve this it will employ a more forceful and balanced policy mix.
“Implementation of mutually-reinforcing structural reforms and macroeconomic policies, using all policy tools, individually and collectively is vital to stimulate actual and potential growth, enhance financial stability and avert deflation risks,” the IMF said.
