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World economic leaders confident of Chinese economy

Updated: Oct 13,2015 4:45 PM

Leaders of the world economy remain optimistic about the global growth outlook despite capital market fluctuations.

Participants at last weekend’s 2015 Annual Meetings of the World Bank Group and the International Monetary Fund noted the importance of central banks in maintaining growth while acknowledging the uncertainties faced by the global economy.

They also expressed confidence in the prospects of the domestic economy, with many believing that China can resist the impact of a slowing economy and realize the transition of the growth model.

Vote of confidence

The IMF lowered its global growth forecast in its latest World Economic Outlook for the second time this year, predicting that the global economy will grow 3.1 percent this year and 3.6 percent in 2016, both 0.2 percentage points lower than its outlook in July.

The fund left its China predictions unchanged at 6.8 percent for this year and 6.3 percent in 2016.

Many officials at the Meetings, including IMF Managing Director Christine Lagarde, said they believe that China could realize a successful transition from export-led growth to consumption-driven.

UK Finance Minister George Osborne said the risks in the global economy were rising, and that the UK cannot be immune from such risks, but he added that “we must put the Chinese economy in perspective, as it is still an enormous contributor to world growth”.

Lagarde said in an interview that the outlook for China’s economy is not all “doom and gloom”.

”I would say that it’s a recovery that is decelerating a bit,” she told the BBC, but said it was expected to gain momentum next year.

Olivier Blanchard, who has just stepped down as chief economist of the IMF, said that chances of a drastic slump in Chinese growth are small.

Rating agency Moody’s also said that China’s sovereign rating can withstand slower growth and greater volatility. It rated China Aa3 with a stable outlook, and is forecasting GDP growth at 6.8 percent in 2015 and 6.3 percent in 2016.

As for the Chinese yuan’s possible status as a new currency for Special Drawing Rights (SDRs), Lagarde said that the IMF will complete an assessment soon.

Central banks are like “tired titans”

Faced with the current global economy, officials agreed in the communique of the International Monetary and Financial Committee that the key policy priorities are to take further measures to lift short-term and potential growth, preserve financial sustainability, reduce unemployment, manage financial stability risks, and support trade.

The IMF has urged the US Federal Reserve, Japanese and European central banks to wait for more signs of recovery before tightening. Lagarde also repeated her plea to US Fed Chair Janet Yellen to stay her hand.

The Organisation for Economic Cooperation and Development will likely lower its growth forecasts next month, but the global economy is not at risk of paralysis, according to OECD secretary-general Angel Gurria.

He also said that the emerging markets now look like they are perhaps the ones facing greater challenges.

A monthly letter called “Tired Titans” written by Mark Haefele, global CIO at UBS Wealth Management, noted that central bank contributions to raising global growth and markets since the financial crisis have been colossal - evoking the Greek titan Atlas bearing the weight of the heavens on his shoulders. Yet in recent months, confidence in the power of monetary policy makers has been shaken.

The letter said investors are now deeply skeptical of the Bank of Japan’s ability to meet inflation targets without further stimulus. And the US Federal Reserve’s decision to keep interest rates at record lows confused markets by adding new language about global growth concerns. With more central banks playing a role in how global growth evolves, investors require a high risk premium until the growth picture improves, it said.