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IMF warns bigger-than-expected China slowdown among risks to global economy

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By Reuters
IMF warns bigger-than-expected China slowdown among risks to global economy
The International Monetary Fund (IMF) headquarters building is seen ahead of the IMF/World Bank spring meetings in Washington, U.S., April 8, 2019. REUTERS/Yuri Gripas   -   Copyright  YURI GRIPAS(Reuters)

By Leika Kihara

WASHINGTON (Reuters) – A bigger-than-expected slowdown in China’s economy is among key risks to global growth, International Monetary Fund Deputy Managing Director Mitsuhiro Furusawa warned, as G20 finance leaders gather to discuss a darkening world economic outlook.

Furusawa said China’s slowdown so far has been moderate and Beijing has the necessary tools to underpin growth, helping keep Asia a key driver of the global economy.

But he warned that uncertainty over China’s growth outlook was among risks to the global economy, as well as the chance of an abrupt tightening of market conditions if Sino-U.S. trade talks take an unexpected turn for the worse.

“One would be the trade friction, which is weighing not just on trade volume but investment,” Furusawa said on risks to the global outlook. “If China’s economy slows more than expected, that’s also a risk to the global economy,” he told Reuters on Wednesday.

Trade frictions and China’s slowdown are among factors finance leaders of the Group of 20 major economies will discuss when they meet this week on the sidelines of the IMF meetings.

China’s economy expanded at a 6.6 percent rate last year, the slowest rate of expansion since 1990, stoking concern that slumping demand in the world’s second-largest economy could prolong weaknesses in global growth.

The IMF expects China’s growth to slow further to 6.3 percent this year, though the forecast was an upgrade from its projection made three months ago.

Furusawa said China should not lose sight of the need to undertake structural reforms to address problems like excess capacity and rising debt, even as it seeks to spur growth with short-term stimulus measures.

“That’s a crucial point and Chinese authorities understand this well,” he said. “It’s undesirable for China, or any other country, to keep relying on stimulus measures for too long. You need structural reform to strengthen economic fundamentals.”

Furusawa said the decisions by U.S. and European central banks to pause in their efforts to normalise monetary policy were desirable not just for Asia but for the entire world economy given weakening growth.

But he said central banks should not be the only game in town when aiming for sustainable economic growth.

“Given current conditions, we support the current accommodative monetary policy stance,” said Furusawa, a former top Japanese currency diplomat.

“That said, monetary easing must remain data dependent and be well communicated. Countries need to undertake necessary structural reforms that will help them achieve sustainable growth,” he added.

(Reporting by Leika Kihara; Editing by Andrea Ricci)