The International Monetary Fund (IMF) has announced a lowered growth forecast for the Chinese economy in 2013 and 2014.
A 7.75 percent growth, down from an originally predicted 8 percent, was forecast after a team from the IMF visited China earlier this month. In light of these projections, the IMF are strongly suggesting that the government consider economic reforms to keep their GDP growth steady.
The BBC reports:
Last year, China’s economy grew by 7.8%, its slowest rate for 13 years. In the first three months of this year, it expanded at a lower-than-expected annual pace of 7.7%.
Last week, the release of disappointing Chinese manufacturing figures was one of the factors behind a global sell-off in shares. A survey indicated that factory activity had contracted for the first time in seven months in May.
There are several other factors contributing to the lowered rate of predicted growth. The New York Times explains:
The rapid growth in credit in recent years also has emerged as a major source of concern among analysts, who worry that the accumulation of debt brings substantial risks, including asset price bubbles and potentially destabilizing defaults.
The I.M.F. added its voice to the chorus of warnings about the so-called shadow-banking system — lending outside the regulated banking system, which has been growing rapidly in the past few years.
The growth in credit, the I.M.F. said, “raises concerns about the quality of investment and its impact on repayment capacity, especially since a fast-growing share of credit is flowing through less-well supervised parts of the financial system.”
A .25 percent decrease may seem marginal, however any signs of trouble in the Chinese economy are worrisome. Persistent rumors and speculation of financial troubles due to a potential housing bubble, along with frustrations in efforts to increase consumer spending put the state of the world’s second largest economy in a precarious balance.
The Chinese economy is expected to overtake the USA’s by 2016.
Read the IMF report.
[By Oliver Dzuba // Image credit Philip Roeland]