IMF Ups China GDP Outlook on Beijing’s Policy Actions

On Tuesday, the International Monetary Fund (IMF) increased its 2023 growth projection for China to 5.4%, acknowledging the nation’s third-quarter growth and recent policy actions in Beijing. However, the International Monetary Fund (IMF) also issued a warning regarding persistent challenges in the real estate sector.

Despite the upward revision, the International Monetary Fund (IMF) anticipates a slowdown in growth to 4.6% next year, primarily due to ongoing weaknesses in the property market and subdued external demand. Gita Gopinath, the IMF’s First Deputy Managing Director, emphasized that significant challenges persist in the real estate market.

“The pressure remains,” Gopinath said in an exclusive interview with CNBC, adding that market stress and weakness are persistent issues that won’t be resolved quickly. The real estate and related sectors have accounted for more than 25% of China’s economy, leading some experts to argue for a contraction, potentially by as much as 10 percentage points.

The Mortgage market

Beijing initiated measures in 2020 to curb developers’ heavy reliance on debt for expansion but has recently relaxed some of these restrictions. An ongoing challenge is that developers, facing difficulties in obtaining financing, have delayed the completion of apartment projects, causing disruptions in the mortgage market.

“Some progress is being made, but a lot more is needed,” Gopinath pointed out. She emphasized the potential role of the central government in providing direct funding to address these issues and boost household confidence. Additionally, she stressed the importance of expeditiously dealing with nonviable property developers and allowing housing prices to adjust more flexibly for a smoother transition. In October, the International Monetary Fund (IMF) revised down its growth projections for China, estimating a growth rate of 5% for the current year and 4.2% for the following year.

International Monetary Fund’s Regional Economic Outlook for Asia & Pacific

IMF’s Chief Economist Gita Gopinath expressed that she doesn’t anticipate a significant impact on commodity prices resulting from the IMF’s upgraded growth forecast for China. She emphasized that the key factor for a more substantial effect on the global economy would be if China could raise its medium-term growth forecast beyond its current 3.5%. This could be achieved through appropriate reforms.

China’s Downfall

China has been facing a slowdown in overall economic growth due to challenges such as high levels of debt and structural issues. While Beijing has set a 2023 GDP target of approximately 5%, it has increasingly emphasized the concept of “high-quality growth.”

Gopinath explained that Chinese authorities are not solely focused on headline growth figures; they are also committed to promoting sustainable, inclusive, and high-quality growth. They are actively addressing multiple facets to achieve this goal.