IMF says Chinese growth could be cut by 50%

China’s economic growth could be slashed by nearly half this year if Europe’s debt crisis tips the world economy into recession, the International Monetary Fund warned yesterday.

In its latest China Economic Outlook, the IMF revealed that under its “downside” forecast for the global economy the country could see its outlook for growth cut from just over 8 per cent to about 4 per cent.

The IMF, one of the main bodies trying to prevent a Greek default on its debt that is seen as potentially having global economic ramifications, called on the Chinese government to take strong measures if such a sharp slide in its growth happened.

“In the unfortunate event such a downside scenario becomes reality, China should respond with a significant fiscal package, executed through central and local government budgets,” the organisation said.

Stimulative measures could include cuts in consumption taxes, subsidies for consumers, corporate incentives to expand investment, fiscal support for smaller firms, and more spending on low-cost housing social safety nets, the IMF added.

Such fiscal stimulus could add up to 3 per cent to Chinese GDP and help mitigate any faltering of momentum in the country’s economy, it argued.

A recent poll of economists in January forecast China’s growth was likely to ease to 8.4 per cent from 9.2 per cent in 2011 as demand at home and abroad has slackened.

The IMF said yesterday that falling inflation would enable the Chinese central bank to adjust policy to support growth through its open currency market operations in the coming weeks.

It said the central bank could also cut banks’ capital ratio reserve ratios if capital inflows remain muted.