Economy

IMF report predicts 10.5% growth

By Wang Bo, (China Daily)
Updated: 2010-10-08 06:36

BEIJING - China's expansion has served as a "linchpin" for global trade and boosted numerous economies, the International Monetary Fund (IMF) said in a report, while urging countries, including China, to achieve balanced growth.

The Washington-based fund projected that the Chinese economy would grow by 10.5 percent this year and 9.6 percent next. This is in contrast to the report's predictions of global growth of 4.8 percent in 2010 and 4.2 percent in 2011.

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China's growth will be spurred by domestic demand, the report said.

"Private domestic demand is poised to contribute to two-thirds of China's near-term growth and government activities about one-third, whereas contribution from net exports will be close to zero."

China's growth has helped power a global recovery after the financial crisis, even though the domestic economy experienced a mild slowdown in the past few months due to credit curbs and tighter measures introduced on the property sector.

Commodity exporters including Australia and Indonesia, as well as economies that sell capital goods, such as Germany and Japan, are beneficiaries of China's growth, the IMF noted.

The economy showed robust signs in September with the manufacturing sector expanding at the fastest pace in four months, easing concerns that China is at risk of an economic hard landing this year.

"Economic growth is expected to pick up to a moderate pace after bottoming out in the fourth quarter," Nomura Securities said in a research note.

However, the IMF warned that the global economic recovery "remains fragile and uneven", as many economies are still facing major adjustments and the financial sector is still vulnerable.

"The key policy challenge is to effect a smooth transition from public to private sector-led growth in many advanced economies, and from external to domestically driven growth in key emerging economies," the IMF said.?

The fund urged emerging market countries with large current account surpluses, like China, to accelerate rebalancing, and said an appropriate appreciation of their currencies will enhance income and purchasing power.

"We see distortions which have led to too low a level of consumption removing these distortions and thus allowing consumption and investment to increase is highly desirable from the point of view of the country," Olivier Blanchard, economic counselor and director of the IMF Research Department, said at the release of the report on Wednesday.

China, which traditionally used exports as its main growth engine, is now considering boosting domestic demand and seeking a more balanced and sustainable growth path.?

In the country's 12th Five-Year Plan (2011-2015), still being formulated, changing the growth model is expected to be a main theme.?

"There has been a growing recognition within the top leadership that the old growth model is no longer sustainable, not just economically, but also politically," Ma Jun, chief China economist at Deutsche Bank, said.?

"We expect the forthcoming plan to focus less on growth rates and more on structural adjustments," he added.?

Wang Tao, chief China economist at UBS Securities, predicted that the global environment would be more challenging for exports.?

"It is essential to let consumption contribute more to the country's economic growth, as the country will face a more difficult economic environment externally in the next few years, with weaker Western demand and rising protectionism."?