China's gross domestic product expanded 7.6 percent from a year ago in the second quarter, which was the slowest pace in three years. [File Photo]

Chinese?economy seems headed for a soft landing though global headwinds are increasing, an International Monetary Fund (IMF) report said Wednesday.

The IMF also softened its stance on the yuan's exchange value, saying it was "moderately undervalued" against a basket of currencies.

In its Staff Report for the 2012 Article IV Consultation, the IMF said it expected China's growth to moderate to around 8 percent this year and inflation to drop to 3.5 percent. "The economy has been slowing partly as a result of policy action to moderate growth to a more sustainable pace, but a worsening of the euro-area crisis poses a key risk to the outlook," the IMF said.

It suggested that policies should continue to be geared toward achieving this year's growth targets. As for the worsening external outlook, it said China has ample room to respond forcefully, using fiscal policy as the main line of defense and emphasizing measures that support its longer-term reform objectives.

But it also pointed out that China's growth has become increasingly dependent on investment - a pattern that will be difficult to sustain.

"There is need to accelerate progress in transforming the economic growth model to be more reliant on consumer demand," the IMF said. "Such a transformation would substantially boost living standards and make growth more balanced, inclusive and sustainable."

China's gross domestic product expanded 7.6 percent from a year ago in the second quarter, which was the slowest pace in three years that drew closer to the government's minimum growth target of 7.5 percent for this year.

In the first six months, China's economy grew 7.8 percent - lower than the IMF's forecast for 2012 which stood at 8 percent.

"It indicates the IMF expects a mild rebound in the second half of this year," said Tang Jianwei, an economist at the Bank of Communications, who also predicted that a rebound will soon begin although it may be weaker than previously expected.

The IMF also said the yuan is "moderately undervalued." The softened stance reflected less current account surplus, slower international reserves accumulation and past real effective exchange rate appreciation.

It lowered its medium-term forecast for the current account surplus to be between 4 percent and 4.5 percent of GDP. China's current account surplus fell to around 3 percent of GDP last year, indicating a more balanced trade and less need for a stronger yuan.