China's economic growth is expected to weaken to 7.8 percent this year, the International Monetary Fund said yesterday as it warned of risks to emerging Asia if the eurozone crisis worsens and the United States does not avoid its "fiscal cliff."
However, the IMF said several Asian countries had fiscal room to support their economies if needed and it reiterated a long-standing view that some regional countries have weaker currencies than desirable.
The IMF sharply lowered its forecasts for India and predicted "less buoyant" growth in the near- and medium-term for Asia as a whole, cautioning any cool down in China's investment surge will add to the drag on regional and German manufacturers.
"The balance of risks to the near-term growth outlook is tilted to the downside," the IMF said in its semi-annual World Economic Outlook.
It predicted China's economy, the world's second-biggest, will "soft land" by growing 7.8 percent this year and 8.2 percent next year, boosted by interest rate cuts in June and July. China has targeted growth of 7.5 percent this year.
In July, the IMF had forecast 2012 growth of 8 percent and 2013 expansion of 8.5 percent.
"In the short term, a further escalation of the euro-area crisis and failure to address the US fiscal cliff are the main external risks," the IMF said.
Europe and the US are the two biggest buyers of China's exports, which are growing at a single-digit pace - the weakest in three years - as Western shoppers tighten their belts.
The IMF's China forecast has fallen into line with private sector economists. A September poll by Reuters showed they expect the world's growth engine to grow 7.7 percent this year, its weakest in 13 years.
The headwinds for Asia could worsen, it said. The US economy could sink into recession if Congress does not avert a "fiscal cliff" of automatic tax rises and deep federal spending cuts before a year-end deadline.
The IMF said China, South Korea and emerging nations in Southeast Asia have room to loosen fiscal policy and shore up economic growth, if needed.
China is already loosening fiscal policy at the margins. Since May, it has accelerated more than US$150 billion worth of state spending on infrastructure.
But analysts have warned that China's addiction to heavy investment as a means of supporting growth is not sustainable in the long run.
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