WASHINGTON -- China is well placed to respond to possible deterioration of external environment and its economy may be undergoing a soft landing despite growing global headwinds, the International Monetary Fund said in a report on Tuesday.

"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 Washington-based institution said in its annual Article IV Consultation Staff Report for China.

The IMF estimated China's economic growth would moderate to about 8 percent this year and then rise slightly to 8.5 percent in 2013. Without further shocks to agricultural supply, China's inflation is expected to stay in the 3-3.5 percent range this year and fall to 2.5-3 percent in 2013.

The IMF said China's macroeconomic policies are geared to slowing growth to a more sustainable pace, and continue to be adjusted in line with evolving conditions. It considered China's current fiscal stance as "appropriate" and monetary policy "consistent" with the authorities' economic objectives.

Executive directors of the Fund agreed that the key challenges for China's policymakers in the period ahead will be to achieve a soft landing for the economy while pushing ahead with reforms for a more balanced and sustainable expansion.

The IMF said policies should continue to be geared toward achieving this year's growth targets. In the event of a worsening of the external outlook, China has ample room to respond forcefully, using fiscal policy as the main line of defense and with emphasis on measures that support China's medium-term reform objectives.