IMF Lifts China Growth Forecast

The International Monetary Fund (IMF) expects China’s economic system to show growth of 5% in the current year.

IMF Lifts China Growth Forecast

It is worth noting that in this case, an improvement in the forecast was recorded. The previous version of the IMF experts’ vision of the prospects of the dynamic of the economic system of the specified Asian country in the current year was less optimistic. Initially, representatives of this organization expected that the Chinese economy would grow by 4.6% in 2024. Over time, the forecast was revised toward an improved assessment of the indicators that are likely to be achieved in the current year. It is worth noting that the Chinese leadership has set a target for economic growth in 2024 at 5%.

The revision of the IMF forecast is due to two factors. In this case, the measures of the government of an Asian country had an impact on the changes in the vision of the prospects of the Chinese economy. In this case, it implies actions aimed at stimulating economic growth. Also, in a certain sense, the IMF’s point of view regarding the expected indicators was influenced by reality itself. In 2024, China’s economy showed growth that exceeded preliminary forecasts. In the first quarter of 2024, the gross domestic product (GDP) of the Asian country increased by 5.3% year-on-year. The relevant data was released by the National Bureau of Statistics in April. It is worth noting that experts interviewed by the media predicted that China’s GDP growth in the first quarter of 2024 would be 4.6%. Also noteworthy in this case is the fact that in the last three months of 2023, the mentioned indicator rose by 5.2%. Against the background of the specified figure, the result observed in the first quarter of the current year is what can be described as an intensification of the dynamic of economic growth.

The IMF has also improved its vision of China’s GDP prospects in 2025. Representatives of this organization believe that the more optimistic economic dynamic will continue next year, as a result of which the mentioned indicator will grow by 4.5% relative to the expected result in 2024. The previous version of the IMF forecast for the Asian country’s GDP in 2025 provided for an increase of 4.1%.

The above-mentioned growth of the Chinese economy by 5.3% in the first quarter of the current year was a kind of evidence that this system is stronger than experts’ estimates in the context of the relevant issue. At the same time, the specified result does not mean that the state of affairs in the economic dimension of the existence of an Asian country is ideal or at least does not contain significant problems. The prolonged and to some extent fundamental downturn in the Chinese real estate market continues to be a source of what can be described as a negative impact. This circumstance remains a factor of pressure on the economic system of the Asian country, including, on a certain scale, limiting the prospects for its positive dynamic in the form of growth. One of the most sensitive aspects of the downturn in the real estate sector is its negative impact on domestic demand in China.

At the same time, IMF’s First Deputy Managing Director Gita Gopinath said this week during a conversation with media representatives that there are signs of a recovery in consumer activity in the Asian country. However, she noted that it has some ways to go to strengthen and reinforce the mentioned tendency.

Also, during a conversation with media representatives, Gita Gopinath stated that there is currently an increase in public investment in China. Moreover, in this context, she noted that private investment in the Asian country is still weak. According to her, this situation is the result of the negative state of affairs in the real estate sector.

The IMF called on Beijing to provide additional monetary and fiscal support to the economic system.

Returning to the topic of the downturn in the real estate sector, which has already managed to transform into what can be described as the vulnerability of the Chinese economic system in its current condition, it should be noted that the authorities of the Asian country have taken measures aimed at solving this problem. Beijing has been trying to lower prices in the property market and stimulate demand. However, these efforts have not resulted in a fundamental improvement in the real estate sector.

In an IMF statement released this week, Gita Gopinath said it should be a priority for Beijing to mobilize central government resources to protect buyers of pre-sold unfinished homes and accelerate the completion of unfinished pre-sold housing. According to her, such measures can be a step towards solving the problems of insolvent developers.

It is worth noting that in May, Beijing announced new efforts to strengthen the real estate market. In this case, solutions such as easing down payment requirements for buyers and providing financing by the central bank of the Asian country for 300 billion yuan ($42 billion) are implied. It is expected that these measures will help the municipal authorities to purchase excess inventory from developers. Gita Gopinath says that Beijing should make additional efforts. According to her, the fiscal policy of the Asian country should be aimed primarily at providing one-off financial support to the real estate sector from the central government. She noted that the low inflation rate in China generates opportunities for further easing of the monetary policy of the local financial regulator.

The IMF also continues to assess the impact of Washington’s announced tariffs on Beijing. In this context, Gita Gopinath stated that a political strategy that exacerbates fragmentation at the global level is negative for the whole world. She also noted that there is currently a tightening of the concept of trade policy in all countries. Last year, about 3,000 new trade restrictions were introduced worldwide. This indicator is three times larger than the figure observed in 2019.

Gita Gopinath says that the risks to the global trading system have increased. In this context, she also emphasized that the first signs of fragmentation are already being observed. According to her, trade between countries that are more geopolitically aligned is developing better compared to indicators of similar interaction between states that are less geopolitically aligned.

Besides, Gita Gopinath says that recently states have been relying more and more on industrial policy. According to her, scaling up the corresponding concept of action can cause misallocation of resources and create spillovers that affect other trading partners. Gita Gopinath stated that when the United States, the European Union, or China put a subsidy, there is a 75% chance that over the next 12 months, another country from the mentioned list will take similar measures as a kind of response.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.