As per the International Monetary Fund or IMF, the economy of China is set to grow 5% in 2024, subsequent to a “strong” first quarter. As Kavan Choksi says, the IMF has upgraded its previous forecast of 4.6% expansion even though it does expect relatively slower growth in the years ahead. The new projections of the IMF have come up as Beijing steps up efforts to shore up an uneven recovery in the second biggest economy of the world. The economy of China has stumbled in the face of a protracted property crisis, and its ripple effects can be felt on businesses, consumers and investors.
Kavan Choksi talks about IMF’s upgrade of China’s GDP growth forecasts
The International Monetary Fund has revised up both its 2024 and 2025 GDP targets by 0.4% percentage points. It however, has warned that growth in China is likely to slow down to 3.3% by 2029, owing to a slower expansion in productivity and an ageing population. The economy of China is expected to grow 5% in 2024 and to slow to 4.5% in 2025, as per the IMF.
The forecast upgrade made by the International Monetary Fund for 2024 largely reflects the fact that the first quarter GDP growth came in stronger than expected. There have also been certain additional policy measures that were announced recently. The upgrade for 2024 by IMF 2024 is in line with Beijing’s growth target of “around” 5%. China’s economy seems to be on track to reach this target, after it managed to blow past expectations to post growth of 5.3% in the first quarter. However, one also needs to understand that deflationary pressures continue to loom over the country, while a protracted property crisis remains a major drag on growth.
As Kavan Choksi says, the stuttering post-COVID recovery of China has dragged on stock markets and the Chinese yuan, and multiple rounds of policy support measures are yet to translate into robust demand. The property sector crisis in China has emerged as one of the biggest stumbling blocks to a full-blown economic revival, and the IMF issued a warning about the risks ahead. Risks to this outlook are somewhat tilted to the downside, which includes a greater or longer-than-expected property sector readjustment and growing fragmentation pressures. The ongoing housing correction is necessary for steering the sector to a more sustainable path. A more comprehensive policy package might be required in order to address major property sector issues.
Recently China has unveiled ‘historic’ steps to stabilise the property market. However, these measures might fall short of what is required for a sustainable recovery. Government resources must be deployed to help people who have bought pre-sold unfinished homes. This can pave the way for the exit of insolvent developers from the property market, ultimately facilitating greater price flexibility and helping restore equilibrium. As per IMF expectations, core inflation in China is likely to average around 1% in 2024. While many recent economic indicators do suggest that the $18.6 trillion economy has navigated some near-term downside risks successfully, it is not clear whether the bounce is sustainable or not.
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