Eurozone crisis threatens to cut China’s growth in half

Date: Monday 06 Feb 2012

In a report released today from its Beijing office, the International Monetary Fund (IMF) warns that the European debt crisis could cut China’s growth in half.

In its China Economic Outlook, the IMF notes that the “global recovery is threatened by intensifying strains in the euro area and fragilities elsewhere.” The Fund insists that China’s growth rate would “drop abruptly if the euro area experiences a sharp recession”.

According to IMF calculations, this would translate to a fall of “around 4 percentage points” from the currently expected 8.25% for this year.

However, not all is so grim and dire as the IMF insists that in spite of the current slowdown, China “remains a bright spot in an unpredictable global economy”.

The lesson the Asian giant must learn is to rebalance its economy with more private consumption, a diminishing reliance on investment and critical financial and corporate sector reforms.

Despite the danger from the Euro Zone debt crisis, the IMF feels that “China has room for a countervailing fiscal response” and suggests that “any stimulus should be executed through the budget rather than the banking system.”

JM

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