IMF downplays China, oil price impact on global growth

The IMF Thursday downplayed the possible negative impact of a Chinese economic slowdown and a spike in oil prices on global growth, stressing China's share of world output and trade is relatively small.
Raghuram Rajan, director of the International Monetary Fund's research department, said the effect would be negligible on energy-efficient Japan, the world's second-largest economy, which is forecast by the IMF to grow four percent this year.
As for China, it is still too early to predict whether an expected credit tightening designed to avoid a boom-and-bust cycle would lead to a soft- or hard-landing for the world's sixth largest economy and fourth-largest trader, Rajan said.
A slowdown in China economy - which accounts for just under four percent of the total world output, compared with a combined 45 percent for the US and Japanese economies - would certainly not threaten global growth, he said.
"China's GDP (gross domestic product) is big but not huge," Rajan said, adding the negative impact of a Chinese slowdown would not an issue of magnitude but rather of how it affects business and consumer sentiment.
The Chinese authorities have been struggling to slow their runaway economy, seeking to rein in investment in key sectors such as steel, autos and construction by strictly curbing bank lending.
The Washington-based IMF estimates that a slowdown in China from last year's 9.1 percent growth would reduce world output by only 0.3 percentage points in the short term and 0.75 percentage point "in several years."
This is based on the IMF's assumption that booming investment in China slows by 5.5 percent, imports drop 10 percent and GDP falls four percentage points this year.
Most of the expected slowdown will affect its Asian neighbours, with Japan seeing a 0.5 percentage point drag in the long term and newly industrialising economies a full percentage point, Rajan said.
"China is not a huge part of world trade," he said. "Also re-exports to the US and Europe are unlikely to be affected by a Chinese slowdown." The negative impact on the US economy, the world's largest, would be minimal, estimated at only 0.1 to 0.2 percentage point, Rajan said.
Mariko Watanabe, research fellow at the Japanese government's Institute of Developing Economies, agreed that the Chinese economy, which is still small relative to the country's population, was unlikely to crash or trigger another Asian crisis.
"I also doubt if its growth rate is actually going to slump," she said. "The Chinese authorities have taken pre-emptive action and therefore they may not have to tighten too much later."