China Trade Forecast Could Be Lowered

The International Monetary Fund (IMF) is considering lowering its estimate of future Chinese trade surpluses in the next World Economic Outlook due later this month. The IMF’s current forecast could be lowered to 5%, putting a severe crimp in the argument that China’s currency is undervalued. The US and the IMF have been pointing to China’s substantial trade surpluses as evidence that the currency is deliberately undervalued in an effort to support China’s exports.

The Wall Street Journal cites informed sources who say the IMF is not likely to issue a new judgment on the Chinese yuan in the coming version of the WEO because the IMF is changing the way it evaluates currencies and the new method won’t be unveiled publicly until June.

The IMF has been more often wrong than right in its predictions of China’s trade surplus, forecasting 10% of GDP in 2008 as a long-term figure. In fact, the country’s trade surplus in 2011 totaled 2.8% of GDP. While it is tricky to forecast trade account balances in these uncertain economic times, the IMF should be able to do better than being off by a factor of more than three.