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Chinese economy slowdown to have spillover effect in Asia: IMF

The expected slowdown in the Chinese economy, a key driver of the global growth, and its sheer size and integration into global economy mean that its performance affects those around it, the IMF said in a blog post on its website.

Chinese economy slowdown to have spillover effect in Asia: IMF

Washington: With China's economy slowing down, India could "durably occupy" the top growth spot among large emerging markets, the IMF said Monday even as it warned of a "spillover" effect of slowdown in the world's second biggest economy on its neighbourhood and other Asian countries.

The expected slowdown in the Chinese economy, a key driver of the global growth, and its sheer size and integration into global economy mean that its performance affects those around it, the IMF said in a blog post on its website.

"We have estimated that a one percentage point slowdown in Chinese growth translates into a 0.3 percent decline for other Asian countries," the IMF said in a blog post titled 'Managing China's Economic Transition'.

"Such spillovers obviously are of concern, and recent experience suggests that spillovers to China's neighbours in Asia might have become even larger lately, coming not only through trade but also global financial market linkages," it said.

The worrying IMF blog came a day after the World Bank said that India is likely to weather global volatility.

"With China gradually transitioning into an environment of lower growth, India could durably occupy the top growth spot among large emerging markets," the Bank said.

In its blog, the IMF said the spillovers of Chinese economic slowdown have been magnified by forces that extend beyond China's border - including falling commodity prices and the prospect of an increase in the US interest rates - which could produce downward pressure on Asian countries.

"The bottom line is: vigilance must remain the watchword. For China, that means focusing on the downside risks, and for the rest of the world, guarding against potential spillovers," the IMF said.

"If managed well - including with clearer communication to help guide market expectations - China's transition could provide the basis for renewed economic strength in a region that has led the world in growth for several years," it said.

After 35 years of extraordinarily rapid growth, the Chinese economy is undergoing a major transition from export- led growth to a model increasingly driven by consumption and services, with less emphasis on debt-financed public investment, it said.

This process has been accompanied by a slowdown in imports and financial market volatility, raising reasonable concerns about the impact on the global economy, and particularly the spillovers to countries that have benefited most from China's decades of double-digit growth, it noted.

According to IMF, it would be preferable to avoid the renewed use of debt-financed investment so as to prevent a resurgence of corporate leveraging.

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