May 29 2024: China’s economy is projected to grow by 5% this year, buoyed by a strong first quarter, according to the International Monetary Fund (IMF) on Wednesday. This marks an upgrade from its earlier forecast of 4.6% growth, though slower growth is expected in the coming years.
The IMF’s revised projections come as Beijing intensifies efforts to support an uneven recovery in the world’s second-largest economy, which has been affected by a prolonged property crisis impacting investors, consumers, and businesses.
The IMF has raised its GDP growth forecasts for China in 2024 and 2025 by 0.4 percentage points each but warned that growth would slow to 3.3% by 2029 due to an ageing population and slower productivity expansion. The IMF now expects China’s economy to grow by 5% in 2024 and to decelerate to 4.5% in 2025.
“The upgrade for this year mainly reflects stronger-than-expected first quarter GDP growth and some recent policy measures,” said Gita Gopinath, IMF’s First Deputy Managing Director, at a press conference in Beijing, marking the conclusion of the fund’s annual review of China’s economic policies.
The IMF’s 2024 upgrade aligns with Beijing’s growth target of “around” 5%, which appears achievable after the economy exceeded expectations with a 5.3% growth in the first quarter. However, deflationary pressures and a prolonged property crisis continue to pose significant challenges.
A Reuters poll conducted before the first-quarter GDP data forecasted China’s 2024 growth at 4.6%, but many economists have since upgraded their projections following the stronger numbers. BNP Paribas, Goldman Sachs, and Citi have all adjusted their forecasts to 5%, citing the robust first-quarter data.
Property Risks
China’s sluggish post-COVID recovery has weighed on stock markets and the yuan, with policy support measures yet to fully translate into strong demand. The property sector crisis remains a major barrier to a complete economic revival, according to analysts, and the IMF highlighted the risks ahead.
“Risks to the outlook are tilted to the downside, including from a greater or longer-than-expected property sector adjustment and increasing fragmentation pressures,” Gopinath said. She emphasized the necessity of continuing the housing correction to steer the sector towards sustainability and suggested a more comprehensive policy package to address property sector issues.
China recently unveiled measures to stabilize the property market, but analysts believe these steps are insufficient for a sustainable recovery. Gopinath recommended deploying central government resources to assist those who purchased pre-sold unfinished homes, facilitating the exit of insolvent developers and restoring market equilibrium.
The IMF expects core inflation in China to average around 1% this year. Recent economic indicators for April, including factory output, trade, and consumer prices, suggest that China’s economy, valued at $18.6 trillion, has navigated some near-term risks. However, the sustainability of this recovery remains uncertain.
Retail sales in April grew at their slowest pace since December 2022, while new home prices fell at their fastest rate in nine years. Gopinath noted that the IMF found trade-offs between supporting domestic demand, mitigating inflation risks, and managing debt dynamics, and welcomed the monetary policy steps taken by China’s central bank this year.
4o
