IMF Downgrades China’s Growth Forecasts Due to Property Slowdown
China’s Recovery Losing Steam, Says IMF
The International Monetary Fund (IMF) has revised its growth forecasts for China in 2023 and 2024, citing a weakening recovery and a slowdown in the property sector. The IMF now expects China’s economy to expand by 5% this year and 4.2% next year, down from its previous estimates of 5.2% and 4.5% respectively. The contraction in manufacturing purchasing managers’ indexes and the deteriorating conditions in the real estate sector are contributing factors to the slowdown.
Prolonged Housing Market Correction Could Trigger Financial Stress
The IMF’s regional economic outlook report highlights the potential consequences of a prolonged housing market correction in China. It warns that this could lead to greater financial stress among property developers and result in a larger deterioration of asset quality. As a result, China’s gross domestic product (GDP) could decline by up to 1.6% relative to the baseline by 2025, with a corresponding 0.6% decline in global GDP.
Asia and the Pacific Region: A Dynamic Outlook
In contrast to China’s downward revision, the IMF maintains a positive outlook for Asia and the Pacific region. It describes the region as “the most dynamic” in terms of growth this year. The IMF projects a growth rate of 4.6% in 2023 for the region, contributing around two-thirds of global growth. However, it expects growth to moderate to 4.2% next year and further decline to 3.9% in the medium-term. This is primarily due to China’s structural slowdown and weaker productivity growth in other economies within the region.
Disinflation: A Positive Trend in Asia
Despite the challenges, Asia offers a bright spot in terms of disinflation. Excluding Japan, the region is expected to reach respective central bank inflation targets by the end of next year. This puts Asia ahead of the rest of the world, where inflation is not predicted to return to target until at least 2025. The IMF emphasizes the importance of central banks maintaining appropriate policies to ensure durable inflation at the desired levels.
Guarding Against Premature Policy Easing
The IMF advises central banks in the region to be cautious about easing monetary policy too soon. It emphasizes the need for strengthening financial supervision, monitoring systemic risks, and modernizing resolution frameworks to maintain financial stability. Tightening monetary conditions can pose strains on stability, making it crucial to strike a balance between inflation targets and financial well-being.
With the IMF’s revised growth forecasts for China and the positive outlook for Asia and the Pacific region, it is evident that the global economy is facing a complex and evolving landscape. As the world continues to navigate through these challenges, it is crucial for policymakers and stakeholders to remain vigilant and adaptable to ensure sustainable growth and stability.
