IMF Reduces China Growth Forecast to 7.75%

The International Monetary Fund cut its 2013 economic growth forecast for China 0.25 percentage points, to 7.75%, according to a press release issued this week.

The IMF review provides a mixed picture of the country's economy, pointing to improvements and declines on a national and international level.

In the short term, the IMF expects recent credit expansions and a growing world economy to help China's prospects, but questions the longer-term efficacy of the country's investment strategies. The report notes that "while good progress has been made with external rebalancing, growth has become too dependent on the continued expansion of investment, much of it by the property sector and local governments whose financial position is being affected as a result."

The IMF did make note of its approval of the new government's recent reforms to prioritize more "balanced, inclusive, and environmentally friendly growth" going forward. Looking ahead, the IMF prioritized localized governance, market liberalization, and income equality as key policy areas.

The IMF's new growth forecast is still higher than China's own 7.5% prediction, but nonetheless points to important areas for improvement in the quarters to come. Inflation is forecast to hit 3% for 2013, while China's external account surplus is expected to remain steady at 2.5% of GDP.  "These measures represent a challenging reform agenda that will require strong determination and administrative capacity to implement," the IMF wrote. "... success will benefit both China and the rest of the world, reflecting the growing importance of China and its integration with the global economy."

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