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China Should Lower 2015 Growth Target, says IMF

The International Monetary Fund (IMF) said that China should trim its 2015 economic growth target to 6.5%-7% for 2015, below its goal for 2014, and refrain from stimulus measures unless activity threatens to slow sharply from that level.

While most of its directors hold that view, some feel that an even lower growth target is appropriate, the IMF added.

Concluding its annual economic consultation with China, the IMF repeated its recently-revised projection that the China’s economic growth would dip to 7.4% this year, and decelerate further to 7.1% in 2015. The IMF originally projected in April that the world’s second-largest economy would grow 7.5% in 2014 and 7.3% next year.

“Consumption and the labour market are holding up well, and the global recovery is expected to support activity going forward,” the Fund stated.

Beijing is not expected to announce its 2015 target until early next year, although some government economists have suggested a level of around 7% to help create more room to pursue structural changes. China fixed its annual economic growth target for this year at around 7.5%, suggesting for the first time in many years that there is room for growth to come in slightly under the desired level.

However after a weaker first quarter in 2014, the government announced various stimulus measures to offset the drag from weak exports and a cooling property market. Two weeks ago, China reported that
the economy had expanded by 7.5% in Q214, from 7.4% in Q1
.

Separately, the IMF said that Cyprus needs to make additional spending cuts to meet a key target of its financial rescue programme.

IMF official Delia Velculescu said during that more permanent cuts to government spending, including the public sector wage bill, are needed for authorities to achieve a primary surplus of 4% percent of gross domestic product (GDP) by 2018. A primary surplus does not count the cost of servicing existing debt.

Velculescu added that the IMF was ‘flexible’ as to where the cuts fell, but they head to be balanced and sustainable. Cyprus also needed to revise its foreclosure legislation to tackle the high number of bad loans that are holding back its economic growth.

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