IMF says signs of economic recovery have emerged in China
Posted: 22 April 2009 2207 hrs

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WASHINGTON - The International Monetary Fund on Wednesday cut its growth forecast for China's economy this year to 6.5 per cent, but said signs of recovery had emerged in the world's most populous nation.

The IMF's 2009 forecast, made in its bi-annual World Economic Outlook report, was down slightly from its January prediction of 6.7 per cent.

But the growth rate is "still a strong performance given the global context," it said.

"Also, there were some signs of a turnaround in economic activity in China in the first quarter of 2009."

The global economy is projected to shrink by 1.3 per cent in 2009 due to the financial crisis, with the demand collapse in advanced economies and worsening global financial conditions dealing Asian nations a heavy blow, it said.

China however would be able to maintain a relatively strong growth momentum because its export sector makes up a smaller percentage of its economy compared with other countries in the region, the IMF said.

Beijing's massive fiscal stimulus measures and easing of monetary policies were also helping boost consumption and infrastructure investment, it added.

The world's third-largest economy posted growth of 6.1 per cent in the first quarter of the year, the lowest in at least a decade, official data showed last week.

But analysts said several indicators behind the headline growth rate had pointed to some signs of a recovery, as a four-trillion-yuan (586-billion-dollar) fiscal programme unveiled in November started to kick in.

Investment in fixed assets in the cities, a key measure of how the trillions were being spent, rose 28.6 per cent in the first quarter. In March alone, the increase was 30.3 per cent year-on-year, according to government figures.

Retail sales, a main gauge of consumer spending, jumped by 15 per cent in the cities in the first quarter, and by 17 per cent in rural areas as farmers took advantage of government subsidies for purchases of home appliances and cars.

However the IMF said China should do more to bolster domestic demand.

"Further measures to boost consumption would be helpful to rebalance the economy over the medium run as well as to offer short-term support," the report said.

These could include more spending on education and the social safety net, more financial aid to lower-income groups, further investments for rural development, and a reduction in consumption and income taxes, it said.

China already launched a landmark health care revamp this month that aims to provide basic care for all of the country's 1.3 billion people by 2020, with 850 billion yuan to be invested in an initial three-year spending spree.

The government is also drawing up a fresh economic stimulus aimed at boosting consumption on top of the infrastructure-focused four-trillion-yuan package, according to Chinese media reports.

The IMF predicts China's growth to pick up to 7.5 per cent in 2010.

- AFP/ir