IMF Turns Negative on China

Another nail in the coffin of the outlook of China’s economy was pounded in by the International Monetary Fund. The sentiment about the near-term future of gross domestic product and exports in the People’s Republic gets worse nearly daily.

In a statement about the world’s second-largest economy by GDP, the IMF report said:

China’s growth rate is set to moderate to around 8 percent this year due to measures by the authorities to cool the economy, and the global slowdown.

The assessment may not be original, but it does carry the weight of its source. In comments providing further detail, the head of the IMF China team, Markus Rodlauer, said:

Over the past few years, growth in China has relied very much on high and rising rates of investment. So, investment has been very strong, capacity has been built, infrastructure has been added, but it cannot continue at this rapid pace forever. Instead, over the next few years, there needs to be a smooth handover from investment to domestic consumption as the main source of growth in China.

The “handover” is not assured because Chinese consumer spending may be a vicious cycle. As the GDP growth rate slows, China’s consumers, who tend to save more than almost anyone else in the world, could react to a faltering economy by withdrawing to old habits. China’s own goods may see a decline in internal demand. That likely will be compounded by a drop in exports due to economic trouble abroad. Middle-class workers could have reason to worry about their manufacturing jobs.

China becomes the latest of the world’s largest economies to have its growth rate cut by IMF economists. The sequence was inevitable. The economies of the United States, European Union and Japan have become crippled. In Europe some nations may sit in deep recession for years.

China has been in economic trouble for some time, and now the results of that trouble carry the imprimatur of the IMF’s leaders.

Douglas A. McIntyre