Singapore

The International Monetary Fund (IMF) has revised its growth forecasts for China, indicating that the country's recovery is slowing down and attributing it to the weakness in its property sector. In its regional economic outlook report released on Wednesday, the IMF downgraded China's growth projection for 2023 and 2024. The world's second-largest economy is expected to expand by 5 per cent this year and 4.2 per cent next year, a decline from the IMF's April forecast of 5.2 per cent and 4.5 per cent, respectively. 

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The IMF's report highlights that China's recovery has been "losing steam," with the manufacturing purchasing managers' indexes entering a contraction phase between April and August. Simultaneously, conditions in the real estate sector continue to deteriorate, contributing to the downward revision in growth forecasts. 

The report also raises concerns about the property market in China, stating that a prolonged housing market correction could lead to "greater financial stress among property developers and larger asset quality deterioration" in the near-term. This, in turn, could result in a potential decline of China's gross domestic product (GDP) by up to 1.6 per cent relative to the baseline by 2025. The global GDP would also be affected, with a decline of 0.6 per cent relative to the baseline. 

Despite the challenges in China, the IMF's outlook for Asia and the Pacific in 2023 remains relatively positive. The report describes this region as "the most dynamic" for the year. The agency maintains its earlier growth projection for the region, forecasting a growth rate of 4.6 per cent in 2023. It anticipates that economic activity in the region will contribute to approximately two-thirds of global growth this year. 

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However, the IMF expects growth in Asia and the Pacific to decelerate to 4.2 per cent in the following year, and further slow to 3.9 per cent in the medium-term. This would represent the lowest growth rate in the past two decades, except for 2020. The structural slowdown in China and weaker productivity growth in many other economies are expected to exert downward pressure on the region. 

One positive aspect noted in the report is disinflation. The IMF predicts that the region, excluding Japan, is expected to return to central bank inflation targets by the end of next year. This places Asia ahead of the rest of the world, where inflation is not anticipated to return to target levels until at least 2025. 

However, the IMF cautions central banks in the region against prematurely easing monetary policy. It emphasises the need for these banks to ensure that inflation remains durably at appropriate targets, and suggests that strengthening financial supervision, vigilant monitoring of systemic risks, and modernising resolution frameworks are critical to maintaining financial stability. 

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(With inputs from Reuters) 

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