The IMF is set to lower its forecasts for China’s medium-term -current-account surplus, according to two officials who have seen the draft report.
The Washington-based IMF in September last year estimated surpluses of more than 7 percent of GDP for 2015 and 2016. The new forecasts for the broadest measure of trade will be published on Tuesday in the IMF’s World Economic Outlook, according to the officials, who spoke on condition they would not be named because the figures have not been made public.
China, the world’s second--largest economy, amassed US$3.18 trillion in foreign reserves at the end of last year, provoking accusations from US lawmakers that it was keeping its currency weak to promote exports.
The lowered forecasts for China’s current account could reduce pressure on Beijing to allow the yuan to appreciate, former IMF China division head Eswar Prasad said.
The new IMF outlook “definitely implies that the estimates of under-evaluation are going to be reduced,” said Prasad, a senior fellow at the Brookings Institution in Washington. “The big question is whether” it will be “enough to eliminate the sense of substantial undervaluation,” he said.
The prospective reduction of the forecasts was reported earlier by the Wall Street Journal.
The IMF staff, in its assessment of China’s economy last year, estimated that the yuan was “substantially below the level consistent with medium-term fundamentals,” a conclusion disputed by Beijing, which cited faulty current--account projections among other arguments.
The yuan might be near “equilibrium” and policy makers would allow greater exchange-rate volatility, Chinese Premier Wen Jiabao (溫家寶) said on March 14.
China’s current-account surplus was 2.7 percent of GDP last year and will, over three to five years, “go to about 3 percent,” according to estimates by Wang Tao (王濤), an economist with UBS AG in Hong Kong.
Credit Agricole SA projects it will fall to 1.4 percent this year and 1.1 percent next year.
“The case that the yuan is not that undervalued is becoming a mainstream economic view,” said Yao Wei (姚偉), an economist with Societe Generale AG in Hong Kong.
“Confirmation from the IMF provides political support for China in its dealings with the US and other economies,” he added.
China’s current-account excess has shrunk from more than 10 percent of GDP in 2007. The nation yesterday reported an unexpected trade surplus for last month as import growth trailed forecasts, -underscoring the risks of a deeper slowdown in an economy that has powered global expansion.
The yuan had its first quarterly decline since December 2009 in the first three months of this year, sliding 0.06 percent to close at 6.2980 against the US dollar on March 30 in Shanghai, according to the China Foreign Exchange Trade System.
However, the currency remains “substantially undervalued, by about 30 percent against the [US] dollar,” Arvind Subramanian, a senior fellow at the Peterson Institute for International Economics in Washington and a former IMF assistant director of research, wrote in the Financial Times on Monday.
“The mercantilist juggernaut is alive and well,” he said.