BEIJING (Dow Jones)--The International Monetary Fund on Wednesday revised upward its forecast for China's 2011 economic growth to 9.9% just three months after it had forecast 9.7% growth, and suggested Beijing could use exchange rate appreciation to deal with excess demand pressures.
While the IMF didn't specifically mention the yuan exchange rate in its latest World Economic Outlook, it indicated that China could also lead the way for other emerging economies if it adjusts its currency policy.
The IMF's upward revision of its forecast for China's 2011 gross domestic product growth shows it doesn't expect the pace of China's economic expansion to slow much from the 10% it is predicting for this year. It comes as overheating risks are rising in the world's third-largest economy even as Beijing has begun to gradually wind down the extraordinary stimulus program introduced in late 2008.
Economists have urged China to allow the yuan to strengthen much faster to help counter building inflationary pressures--some of it imported due to rising commodities prices on the international market--and temper the risk of domestic asset bubbles worsening.
But China is steadfast against outsiders pressuring it about its currency policy. There is persistent market expectations that Beijing is planning to exit the yuan's effective peg to the dollar, which has been in place since July 2008 to deal with the impact of the global financial crisis.
"In economies with excessive current account surpluses and solid public finances, fiscal exit can wait while excess demand pressures are being addressed by reining in credit growth and allowing exchange rate appreciation. This is essential for China, given its large role in the global market," the IMF said in its semi-annual World Economic Outlook.
"Greater currency adjustment in Asia would facilitate adjustment in other emerging economies that may fear losing market share if their currencies were to appreciate alone," the IMF said.
China's withdrawal of its "exceptional monetary stimulus...will also minimize the risks from excessively easy credit conditions," it said.
Wednesday's report maintained the IMF's forecast for China's 2010 GDP growth, which was revised upward in January from an October projection of 9%.
Although it is common for the fund to sharply revise its economic projections in regular updates, its 2010 GDP growth forecast for China puts the IMF ahead of the Asian Development Bank's 9.6% and the World Bank's 9.5% growth estimates.
Beijing is officially targeting growth of around 8% for this year. In the first quarter, China's GDP grew 11.9% from a year earlier, its fastest pace since the onset of the global financial crisis.
The IMF also raised its inflation forecast for China, as measured by the growth in the consumer price index, to 3.1% for this year, up from its October projection for 0.6%, which puts its forecast in line with the Chinese government's target of keeping CPI growth around 3% for 2010.
China's CPI growth will likely slow to 2.4% in 2011, the IMF said.
China's current account surplus as a percentage of GDP will likely be 6.2% this year and rise a tad to 6.5% in 2011, the fund said, after hitting 5.8% in 2009.
