IMF cuts its global growth forecast

China's economy will grow slower than initially expected this year owing to a "stronger-than-anticipated" pullback in public spending, the International Monetary Fund forecast Tuesday while warning that a weakening property market could bring a further blow. The 8.0 percent prediction in the IMF's latest World Economic Outlook report is down 0.1 percentage points from its July estimate as analysts warn China is facing a painful fallout from real estate weakness and shocks from surging coal prices and shortages. But the figure is still China's strongest growth rate since 2011.

The world's second-largest economy was the only major one to expand last year after the coronavirus pandemic forced governments across the globe to lock down. The IMF also lowered its outlook for next year to 5.6 percent. Concerns over China have intensified in recent weeks as government curbs on the property market piled pressure on overleveraged developers -- notably Evergrande. Measures by local governments to meet short-term climate targets also led to a power crunch. The downward adjustment is the IMF's second since April, when it pegged full-year growth at 8.4 percent. It also warned of risks that could threaten the resilience of the recovery.

The IMF added that an escalation of trade and technology tensions between the United States and China could "weigh on investment and productivity growth, raising additional roadblocks in the recovery path". Should the world's two biggest economies decouple in basic scientific research, there could also be "big negative effects" on global productivity, with an estimated decline of up to 0.8 percent to start, it said.

The International Monetary Fund is now less optimistic about the global economy for 2021, but still sees reasonable growth over the medium term. In its World Economic Outlook, published Tuesday, the Fund said it expects global gross domestic product to grow by 5.9% this year — 0.1 percentage point lower than its July estimate. For next year, the IMF has kept its global growth projection at 4.9%. The revised outlook for this year comes amid supply chain issues in advanced economies and a worsening health situation in emerging countries. “This modest headline revision masks large downgrades for some countries,” Gita Gopinath, chief economist at the IMF, said in an accompanying blogpost.

“The outlook for the low-income developing country group has darkened considerably due to worsening pandemic dynamics. The downgrade also reflects more difficult near-term prospects for the advanced economy group, in part due to supply disruptions.” The United States is one of the countries in this position; the IMF has cut its growth estimates for the country this year by 1 percentage point to 6%. The growth outlooks for Spain and Germany were also cut by 0.5 percentage points each, and Canada’s was reduced by 0.6 percentage point.