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IMF cuts forecast of Chinese growth to 8.25% (FXI)

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The International Monetary Fund has lowered its growth forecast for China, and now predicts 8.25% growth in 2012. According to the IMF, the weak global economic outlook "reinforces the importance" of rebalancing the Chinese economy and encouraging consumption.

The recommendations come as part of a February 6 economic outlook report prepared by the IMF Resident Representative Office in China. According to the report, a mild recession in Europe has dragged global growth down by 3/4 of a percentage point, with ripple effects in emerging markets and China.

China's overall economic indicators are solid. Inflation is declining, though it remains vulnerable to shocks from a tight food supply. The overheated real estate market is cooling, though office renters in Bejing may disagree with the IMF's assessment. Upward pressures on the yuan have diminished.

The IMF recommends government efforts to increase liquidity by lowering reserve requirements, as well as an economic stimulus of deficit spending up to 2 percent of GDP. However, it warns that a financial meltdown in Europe would significantly increase the need for Chinese government intervention in its domestic economy. Lower global demand would affect trade and could reduce the Chinese growth rate by up to four points, assuming there is no domestic intervention.

If the IMF's projections hold true, Chinese growth will speed up again late in 2012, reaching 8.75% growth in 2013. Investors looking to profit from the general health of the Chinese economy should keep the iShares FTSE China 25 Index Fund ( FXI , quote ) in mind.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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