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IMF ups China's growth expectations, cuts US forecasts

The International Monetary Fund (IMF) has revised its China's GDP growth forecast for 2017 and 2018 to 6.7% and 6.4% respectively. This is up from an upgrade made in April to 6.6% and 6.2%. China's growth is expected to continue to be a key driver for a firming recovery of the global economy.

Their World Economic report, which came a few days after China posted stronger than expected second quarter growth, was a reflection of a solid first quarter underpinned by previous policy easing and supply-side reforms. It expects banks to continue to lend to support activity so that authorities can meet a highly publicized target of doubling China's economy by 2020.

"We have seen very strong growth and especially beyond our update, second quarter number of 6.9 percent is also above expectation. So clearly growth is proceeding at pace," IMF's chief economist Maurice Obstfeld said.

"Strong Chinese growth drives growth particularly in Asian region but also throughout the world," Obstfeld added. He also praised China's Belt and Road Initiative as "very important" as it promises not only a lot of useful infrastructure investment but to lower trade cost between very important parts of the world, which promotes international trade and prosperity across the wide stretch of Eurasia.

The IMF did warn against strong credit growth that may come with rising downside risk to medium-term growth.

In May, Berkshire Hathaway's Charlie Munger said, "I do think the Chinese stock market is cheaper than the American stock market. And I do think China has a bright future." At Runnymede we believe there attractive investment opportunities in both the US and China heading into the 2nd half of the year.

Cuts to US forecasts

On the other hand, the IMF now projects that the US will grow at a rate of 2.1% in 2017 and 2018, down from its April forecast of 2.3% and 2.5%. "We have reduced our forecasts for both 2017 and 2017 to 2.1 percent because near-term U.S. fiscal policy looks less likely to be expansionary than we believed in April," wrote Obstfeld. The IMF said economic growth could pick up if the administration implements measures such as tax reform; however it could also fall if Trump's budget, which consolidates many parts of the government as part of an overall spending reduction, is approved. While we do not expect major policy to pass this year, we believe that strong sentiment and fundamentals could push US economic growth higher than IMF forecasts in the 3rd and 4th quarters.

Are you bullish on China or the US? Or both?

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About the Author: Chris Wang

Chris Wang

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