China’s transition to a slower yet more sustainable growth path would benefit global growth, but the transition is still fraught with uncertainty and likely to entail significant spillovers through trade and commodities, the International Monetary Fund (IMF) said.
It said in a note ahead of the G20 meeting in Shanghai that the economies most exposed to spillovers from China are commodity exporters, those within the Asian supply chain, and machinery exporters.
“The current slowdown in China’s growth has been mainly driven by investment and exports. The weakening in investment likely reflects a correction after an extended period of very rapid growth,” the note said.
While the reasons for the slowdown in exports are still unclear, weak external demand and the renminbi’s real appreciation up to August 2015 are believed to have contributed to it. With investment relying heavily on imports of commodities and machinery, the ongoing transition will likely result in weaker demand growth for these products, it said.
China is a major importer across a range of commodities, especially metals, for which it accounted for around 40 percent of total global demand in 2014. The slowdown has had a significant impact on the demand for and prices of commodities. Metals prices have fallen steadily since early 2011 (by almost 60 percent on average).
“This has generated a large excess capacity in mining sectors and forced exporters to adjust to an environment of lower revenues,” the note said, adding that the latest World Bank commodity report highlighted that a 1 percentage point drop in China’s growth could result in a 6 percent average decline in commodity prices after two years.