Markets close in China today, as the Chinese economy continues to slow.
It remains unclear how much impact the country’s massive currency devaluation will have on the countrys GDP, but it is clear that China has a lot of work to do to overcome the massive slowdown that it has suffered in the past few months.
A new report from the International Monetary Fund suggests that the country has lost a quarter of its GDP to its currency devaluations since February, which is an alarming development considering that the US is still in a stronger position than China in terms of economic growth.
The IMF has now forecast that the global economy will grow at 1.5% this year and 2% next year.
That is still a long way from the 2% and 3% growth forecasts made in February, but the IMF expects China to grow at a faster rate than the rest of the world in 2020.
The report notes that China is still on course to be the fastest-growing major economy in the world this year, which will boost GDP by 4.2% and the IMF projects a 1.4% growth rate in 2021.
The biggest threat to China’s economic growth, however, comes from the country of Vietnam, which has a relatively high debt load and is expected to grow by 1.3% this financial year and 1.9% next, according to the IMF.
“While the outlook for China remains good, the country faces a number of challenges, including structural adjustment, labor market reforms and the need to continue to attract and retain high-quality talent, which we believe is still lacking in the labour market,” the IMF said.
In its report, the IMF also says that China will need to “determine the right balance between domestic demand and external demand, with respect to its own domestic consumption, capital accumulation and investment”.
That could mean balancing between domestic consumption growth and foreign demand growth.
The IMF said that China needs to “develop its internal demand management system, reduce the use of external liquidity and leverage, and reduce the debt burden”.
“We are also concerned about the continued reliance on capital account to finance domestic consumption.
We recommend that the government undertake reforms to allow for greater domestic consumption flexibility and flexibility in capital account allocation and financial management, including through the introduction of a national consumption budget,” the report added.