IMF: China’s growth between 2017 and 2021 expected to average 6.4% - ANZ

The IMF has recently released its Article IV in consultation with China and the Selected Issues paper, which focuses on China’s high savings rate and elevated private debt in which the IMF staff have revised up China’s growth outlook compared to last year’s report.

Key Quotes

“Growth between 2017 and 2021 for the world’s second largest economy is now expected to average 6.4%, compared to 6.0% last year. However, this higher growth is owing to more leverage. This comes at a time when debt is already high and growing rapidly total non-financial sector debt – which includes household, corporate and government debt – is expected to continue to rise strongly, reaching almost 300% of GDP by 2022, up from 242% in 2016. This source of growth will lead to rising risks, and possibly to a sharper slowdown down the track.”

“To support sustainable growth the IMF suggests that China needs to do more to reign in credit growth, as the credit gap (ie deviation from optimal trend) remains large. It estimates that the private non-financial gap is around 25%, which is well above the 10% BIS threshold for the maximum counter-cyclical buffer. In addition, the IMF would like to see measures to reduce savings and/or boost consumption to support sustainable growth.”