The International Monetary Fund (IMF) is retaining its 2014 economic growth outlook for China at 7.5 percent, but expects GDP to fall to 7 percent next year because of slow implementation of reforms and policies to limit local government debt and investment credits.

The IMF’s October 2014 Asia and Pacific Regional Economic Outlook, released on Friday, said that for the rest of this year the world’s second-largest economy will get a boost from an increase in exports to the US because of its economic recovery, as well as from accommodative financial conditions and policies.

China’s continued stimulus measures, including spending on railways, support for agriculture and small-to-medium-sized businesses, also will help the country’s GDP this year, the IMF said.

As for 2015, the IMF said growth will hinge partly on government policies, which in turn will depend to an important extent on “the (yet to be decided) growth target.”

Gary Hufbauer, senior fellow at the Peterson Institute for International Economics in Washington, said he thought the IMF report is too optimistic.

“I would tend to go for the downside. Exports are not doing particularly well and there is no dynamic growth in Japan,” he told China Daily in an interview. Hufbauer said he thought housing and real estate “could be big problems next year”.

The IMF report also mentioned real estate in China, noting it has been a “significant growth engine” and now is struggling.

As for the Asia and Pacific region, the outlook remains solid despite a weaker-than-expected first half of the year, the IMF said. GDP should increase by 5.5 percent for the third consecutive year in 2014, rising slightly to 5.6 percent in 2015, according to the report.

If a downturn in China’s real estate sector and growth in Japan is worse than expected, and geopolitical tensions disrupt trade and financial flows, growth prospects for the region will dim, it added.

This report comes as the IMF and World Bank meet in Washington this weekend to assess a global economy that includes a very uneven recovery from the 2008 financial crisis.

In a global forecast prepared for the meetings, the IMF downgraded its outlook for this year and 2015. It said growth would be 3.3 percent this year, one-tenth of a percentage point below its July forecast, and 3.8 percent for next year, two-tenths of a percentage point less than an earlier forecast.

The IMF said Europe is at risk of slipping back into recession and weakness is showing up in Japan and Brazil. Concern over Europe played a major role in sharp declines on the US stock market this week. On Thursday, Germany, Europe’s largest economy, reported itsbiggest monthly fall in exports since January 2009, the latest in a string of weak data from the region.

David Dollar, senior fellow at the John L. Thornton China Center at the Brookings Institution, said European troubles will affect China’s economy.

“The IMF has marked down its forecast for EU growth this year and next. This is important for China because Europe is its biggest export market. Other parts of the world are slowing down as well – Japan, India, and Brazil. This creates headwinds for China’s growth because it will be hard for exports to expand significantly. This makes China’s domestic reform even more important. China needs reform to stimulate domestic consumption. That is the best hope for maintaining healthy growth,” he said in an email to China Daily.

The Peterson’s Institute’s Hufbauer is also concerned about a European hangover on China.

“If Europe takes a hit on its economy, Chinese exports will do poorly, Remember China is still dependent on exports,” he said.

If troubles in Europe and other factors begin to take a toll on the Chinese economy, Hufbauer believes the government will step in.

By PAUL WELITZKIN October 10, 2014 in China Daily