China needs to further tighten the flow of credit in its economy and funnel lending into economic activities that support real growth, International Monetary Fund deputy managing direct David Lipton told reporters in Beijing on Wednesday. The IMF on Wednesday raised its forecast for China’s economic growth this year to 6.7 percent, citing “policy support, especially expansionary credit and public investment”. After years of reliance on debt-fueled stimulus to meet growth targets, early warning indicators of a financial crisis in China are flashing red, economists at Nomura said in a note this week, echoing the warnings of others such as the Bank for International Settlements (BIS).
China must quicken the pace of reforms and do more to curb rising debt, the IMF said today as it raised its growth forecast for the world’s number two economy. The International Monetary Fund expects China to expand by 6.7 per cent this year, faster than its previous estimate of 6.6 per cent due to expanding credit and investment. That would match last year’s growth rate, which was the slowest in a quarter of a century. The economy is then expected to slow to an average of 6.4 per cent expansion between 2018 and 2020. After years of blistering growth, China’s economy has been slowing as it moves from an investment and export-driven model to one more reliant on consumer spending. However Beijing’s Belt and Road infrastructure project, for which the government has earmarked hundreds of billions of dollars, has raised concerns it may be retreating from the difficult transition. David Lipton, the IMF’s first deputy managing director, said it was “critical” that China capitalises on its still- strong pace of expansion to speed up reforms. “While some near-term risks have receded, reform progress needs to accelerate to secure medium-term stability and address the risk that the current trajectory of the economy could eventually lead to a sharp adjustment,” Lipton told reporters at the end of a two-week visit to China. The IMF also called on Beijing to do more to rein in soaring credit, warning that runaway lending could lead to a bad debt problem if borrowers default on their loans. China’s overall debt liabilities, which include corporate and household borrowing, are above 260 per cent of gross domestic product compared to about 140 per cent before the 2008 financial crisis.
India’s wholesale inflation slipped below 3% during May as compared to 3.85% in April, raising hopes of a rate cut by RBI in its next Monetary Policy Review Meeting. The Wholesale Price Index (WPI) or wholesale inflation for the month of May stood at 2.17%, down 1.68% from 3.85% in April. In May, the all commodities index fell 0.4% in comparison to April. With monsoon proceeding as forecasted, inflation is expected to come down further in the coming months, which could trigger a rate cut from RBI during its next Monetary Policy Review Meeting on 2 Aug. “Going ahead, there could be a moderation in inflation in coming months with expectations of normal monsoons. Upside risk to inflation could emerge from movement in the global oil prices. We are expecting the WPI inflation to remain in the range of 3-4% for next couple of months,” Care Ratings said. The wholesale inflation rate, measured by the WPI, is a marker for price movements in bulk buys for traders and broadly mirrors trends in shop-end prices. The government has revised the base year for Index of Industrial Production (IIP) and WPI from 2004-05 to 2011-12. “The revision in the WPI inflation rates would affect the GDP and GVA deflators and may be a precursor to a revision in growth rates for recent years, particularly for those sectors for which nominal earnings or value addition data are deflated using the WPI,” ICRA said.
As inflation slumped to a five- month low of 2.17 per cent in May, India Inc stepped up its call for the RBI to ease the interest rate, highlighting the need to boost investment for the creation of jobs. It expects prices to remain benign in coming months. The industry also urged the government to create a conducive environment for investment, capacity utilisation and augmenttion of industrial production on a priority basis. “I think the case for supporting growth is getting stronger and we hope that the RBI will take a relook at its monetary policy stance in light of these new numbers,” said Pankaj Patel, President, Ficci. Assocham expects the wholesale price index (WPI) based inflation to fall going ahead, citing risks to the Indian economy in the form of global uncertainty, rising protectionism and a renewed slowdown in the Chinese economy which could hit external demand. “Private investment continues to face several impediments in the form of corporate debt overhang and stress in the financial sector whereas bad loans continue to increase,” said Sandeep Jajodia, Assocham President. “The WPI inflation is expected to record a sharp decline to sub-2 per cent in June 2017, led by the base effect and trends in food and commodity prices,” said Aditi Nayar, Principal Economist at Icra. She termed the recent trend of deflation in certain food items such as vegetables and pulses as worrisome from the point of view of assuring remunerative prices to farmers needed to sustain their interest in growing such crops.