IMF raises China outlook to 6.5% but warns of 'spillover'

Beijing: China`s growth slowdown has severely dragged on global expansion and may have "substantial spillover effects", the International Monetary Fund said Tuesday.

With the outlook for global growth darkening, a sharper downturn in China "could lead to a more generalised slowdown" in emerging markets and advanced economies, the IMF said in its April 2016 World Economic Outlook. 

"Basically we`re all in this together, and what happens in one region will affect other regions," IMF economic counsellor Maurice Obstfeld said in a recorded statement, adding that policymakers should "act now".

But the IMF raised its 2016 growth forecast for the world`s second-largest economy by 0.2 percentage points to 6.5 percent, citing announced stimulus plans. It also increased its estimate for next year by the same amount, to 6.2 percent.

The figures still represent a significant fall on the 6.9 percent growth seen in 2015 -- the slowest in a quarter of a century -- and the sober report came as China struggles with a tough transition away from dependence on debt-fuelled investment and export industries.

Beijing has sought to reassure investors that it will make much-needed reforms to tackle overcapacity in steel and the manufacturing sector, but doubts about the authorities` ability and will have weighed on the outlook. 

The IMF noted that "limited progress on key reforms" has fuelled concerns, "triggering turbulence in Chinese and global financial markets". It added that policy actions to quell market anxieties "have, at times, been ineffective and poorly communicated".

The weakness of corporate balance sheets and a large number of non-performing loans posed "risks to financial stability" in China, it said.

As the world`s top trader of goods and a major buyer of commodities -- accounting for roughly 40 percent of global demand for base metals in 2014 -- the slowdown in China after decades of high-speed expansion "has entailed sizeable global spillovers through trade channels", the IMF added.

China accounts for more than 10 percent of global trade, according to the IMF, and a quarter of world investment.

If falling Chinese investment leads to a one percent drop in growth, it said, expansion in G20 economies will fall by a quarter of a percent.