IMF Positively Revises China's Economic Outlook Amidst Strong Recovery
The IMF's announcement comes at a crucial time for China, which has been implementing various measures to support its real estate industry.
Hong Kong and Chinese flags are seen flying side-by-side to commemorate the 26th anniversary of the handover of Hong Kong to China as daily life continues in Hong Kong on July 4, 2023. Photo by Anadolu Images.
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n a notable update from the International Monetary Fund (IMF), China’s economic prospects have brightened, with the IMF revising its growth forecast for the Asian giant. The IMF has increased the 2023 GDP growth projection from 5% to 5.4%, attributing this adjustment to China’s robust post-COVID-19 recovery. However, there is caution in the air as the fund anticipates a deceleration in the following year.
The report, released on Tuesday November 7, indicates that China’s GDP growth may temper to 4.6% in 2024. This expected slowdown stems from persisting frailties in the nation’s property sector coupled with a reduction in external demand. Despite this, the outlook remains more optimistic than previous IMF predictions, which anticipated a growth rate of only 4.2% as per the World Economic Outlook issued in October.
A key factor influencing the IMF’s revised forecasts is China’s strategic economic decisions, including the authorization of a one trillion-yuan (equivalent to RM640 billion) sovereign bond issuance. This move, along with the permission for local governments to utilize a portion of their 2024 bond quotas ahead of schedule, is designed to inject vigor into the economy.
Revised projections
IMF’s First Deputy Managing Director Gita Gopinath underscored the significance of recent economic data and policy measures in shaping these revised projections. “We have raised our growth forecasts for both 2023 and 2024 by 0.4 percentage points compared to our October projections,” Gopinath explained, highlighting the unexpectedly strong economic performance in the third quarter and the introduction of new policy support.
Looking forward, the IMF foresees a gradual decrease in China’s growth rate to about 3.5% by 2028. This moderation is attributed to challenges such as diminishing productivity and the demographic impact of an aging population.
Gopinath, while addressing Reuters, stressed the need for comprehensive policy interventions to bolster the property market and to facilitate a speedier and more cost-effective recovery.
Gopinath elaborated on the necessary policy measures, which include expediting the withdrawal of unsustainable property developers, easing housing price adjustments, increasing central government funding for housing completion, and supporting viable developers in restructuring their finances to adapt to a contracting property market.
A critical juncture for China’s economy
This IMF announcement comes at a critical juncture for China’s economy, which has been implementing a suite of measures to support its property sector. The hope is that with targeted and effective policy packages, China can navigate through the current economic headwinds and sustain its long-term growth trajectory.
China should also develop a comprehensive restructuring strategy to reduce the debt level of local government financing vehicles (LGFVs), she added.
LGFVs were set up by local governments to fund infrastructure investment but now represent a major risk to China’s slowing economy, with their combined debt ballooning to roughly $9 trillion.
“Improvements to local governments fiscal transparency and risk monitoring are necessary to prevent new vulnerabilities emerging, Gopinath warned, noting “financial stability risks are elevated and still rising.”
Sources: Reuters and Business Today
