DAVOS, Switzerland -- At the very first sideline event of this year's Annual Meeting of World Economic Forum, the International Monetary Fund's newly appointed chief economist sent a warning shot across China's bow.
In her opening remarks at the press conference on Monday, Gita Gopinath, a former Harvard professor, said: "China's growth slowdown could be faster than expected, especially if the trade contentions continue." She cited the potential fallout on the market as well. "This can trigger an abrupt sell-off in the financial and commodity markets, as was the case in 2015 and 2016."
The market turbulence in mainland China that started in June 2015 erased about a third of the value of Shanghai's yuan-denominated A-shares in a month's time, leading to self-imposed trading halts for more than half of the shares. The stock market crash was later followed by a devaluation of the yuan, with the negative effects spilling beyond China's borders to a certain extent.
As for China's announcement on Monday that gross domestic product grew 6.6% last year, the slowest pace in 28 years, Gopinath said it was "completely consistent with our forecast."
Fielding questions from Chinese state-owned media, the IMF economist gave positive marks to the recent cut in the reserve requirement ratio for banks and to tax cuts meant to "cushion the negative impact of trade uncertainty." The IMF left its forecast for Chinese growth at 6.2% for 2019 and 2020, unchanged from October, in large part due to these proactive measures.
However, Gopinath said that Beijing still has some homework to do. She pointed to specific policies, such as ring fencing the financial sector "to make sure credit growth is sustainable." The effort toward "rebalancing the economy away from industry to services" in order to boost medium- and long-term growth should be continued, Gopinath said.
Meanwhile, the IMF on Monday presented a much more pessimistic outlook for the global economy. It is now predicting growth of 3.5% for 2019 and 3.6% for 2020, downgrades of 0.2 point and 0.1 point, respectively, from October.
Weaker global growth has dragged the average oil price assumption down below $60 per barrel for this year and next, compared with $69 and $66 in the previous forecast. This could cast a shadow not only on the major oil producers but also on countries reliant on income from labor exports.
"Typically, if you have a slowdown in GCC, you will see somewhat lower remittances that affect countries that send a lot of workers," said IMF deputy director of research Gian Maria Milesi-Ferretti, referring to the Gulf Cooperation Council of six Arabian Peninsula countries. These states hire thousands of workers from Asian countries such as the Philippines, where total remittances from nationals working overseas is equivalent to about 10% of GDP.
The Philippines is already feeling the pinch. According to local media reports in December, cash remittances from the Middle East fell by $1 billion during the first 10 months of last year.
However, some of the labor exporters are oil importers as well, Milesi-Ferretti said, so there are certain offsetting "benefits from the reduced outlay." He named Pakistan and Bangladesh as examples, but the Philippines is heavily dependent on oil imports as well.