Daily Management Review

IMF Raises China's GDP Growth Projections But Cautions About Impending Dangers


IMF Raises China's GDP Growth Projections But Cautions About Impending Dangers
The International Monetary Fund upgraded its prior projection of 4.6% expansion and predicted on Wednesday that China's economy will grow by 5% this year following a "strong" first quarter, even if it anticipates weaker growth in the coming years.
Beijing is stepping up efforts to support an uneven recovery in the world's second-biggest economy, which has faltered in the face of a protracted housing crisis and its knock-on consequences on investors, consumers, and companies. This is reflected in the global lender's latest estimates.
The IMF stated that it had increased its GDP projections for 2024 and 2025 by 0.4 percentage points, but it also issued a warning that, as a result of an ageing population and weaker productivity development, growth in China would drop to 3.3% by 2029.
It now projects China's GDP to expand by 5% in 2024 before slowing to 4.5% in the same year.
IMF First Deputy Managing Director Gita Gopinath stated in Beijing, "The upgrade that we have for this year primarily reflects the fact that first quarter GDP growth came in stronger than expected and there were some additional policy measures that were recently announced."
At a press conference held to commemorate the end of the fund's yearly assessment of China's economic policy, Gopinath was speaking.
The economy looks to be on track to attain Beijing's growth objective of "around" 5%, as seen by the first quarter growth rate of 5.3%, which exceeded forecasts. The IMF's upgrade for 2024 is in keeping with this aim.
However, there are still significant deflationary forces and a protracted real estate crisis that are impeding growth.
Prior to the announcement of the better GDP statistics, a Reuters poll had predicted China's growth in 2024 to be 4.6%; however, several experts have subsequently revised upward their estimates.
BNP Paribas stated in a letter to clients on Monday that it anticipated China to meet its 5% growth objective, while Goldman Sachs increased its 2024 projection last month to 5% from 4.8% in November. Additionally, Citi increased its own projection from 4.6% in March to 5%. They all mentioned the encouraging first-quarter results.
Stock markets and the Chinese yuan have suffered from China's halting post-COVID recovery, despite many rounds of policy assistance measures that haven't yet resulted in strong demand.
Analysts claim that the largest obstacle to a full-fledged economic recovery is still the property sector problem, and the IMF has issued a warning about the potential dangers.
"Risks to the outlook are tilted to the downside, including from a greater or longer-than-expected property sector readjustment and increasing fragmentation pressures," Gopinath stated.
"The ongoing housing correction, which is necessary for steering the sector to a more sustainable path must continue," she stated. "We see scope for a more comprehensive policy package to address the property sector issues."
This month, China announced "historic" moves to stabilise the real estate market, but experts argue that these actions are insufficient to support a long-term recovery.
Resources from the central government, according to Gopinath, should be made available to assist those who have bought pre-sold unfinished homes since doing so will "pave the way for the exit of insolvent developers from the property market, allowing for greater price flexibility and helping restore equilibrium."
She said that the IMF anticipates China's core inflation to rise to an average of about 1% this year.
The $18.6 trillion economy appears to have successfully weathered some short-term downward threats, according to a number of recent economic data for April, including industrial production, trade, and consumer prices, but China analysts believe it's still too early to tell whether the jump
For example, although new property prices plummeted at their highest rate in nine years in April, retail sales rose at their worst rate since December 2022, when Beijing's severe zero-COVID limits were in effect.
Gopinath praised China's central bank's monetary policy actions so far this year and stated that the IMF had "found trade offs between supporting domestic demand, mitigating inflation risks, and managing unfavourable debt dynamics."