IMF raises China's 2023 and 2024 growth forecasts amid post-Covid recovery 

The International Monetary Fund (IMF) on Tuesdayupgraded its growth forecasts for China, indicating that the country's economy is set to expand by 5.4 per cent this year, reflecting a robust Post-Covid recovery.

This upward revision comes after the IMF's previous forecast of 5 per cent growth, Reuters reported.

However, the IMF anticipates slower growth in 2024, with concerns centred around the lingering weakness in the property sector and subdued external demand, potentially limiting gross domestic product (GDP) growth to 4.6 per cent. Nonetheless, this revised projection remains more favourable than the 4.2 per cent forecast in the IMF's World Economic Outlook (WEO) published in October.

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The IMF's decision to upgrade China's growth prospects for 2023 and 2024 is influenced by recent policy actions taken by China, including the approval of a 1 trillion-yuan ($137 billion) sovereign bond issue and the facilitation of local governments to frontload a portion of their 2024 bond quotas.

These measures are aimed at providing additional support to the Chinese economy in its path to recovery.

Reuters quoted Gita Gopinath, the IMF's First Deputy Managing Director, as saying, "We have revised up growth by 0.4 percentage points in both years relative to our October WEO projections, reflecting stronger than expected growth in the third quarter and the new policy support that was recently announced."

While recognising China's strong economic recovery, Gopinath also emphasised the need for additional measures in the property sector to secure a quicker and more sustainable recovery. Addressing the real estate sector, she highlighted the importance of accelerating the exit of non-viable property developers, removing obstacles to housing price adjustments, and increasing central government funding for housing completion as part of the policy package.

These measures are seen as essential for bringing the property sector to a more sustainable size and minimising economic costs. The property sector, combined with the local government debt crunch, poses challenges to China's long-term growth potential, according to economists.

Local government debt in China has surged to 92 trillion yuan ($12.6 trillion), equivalent to 76 per cent of China's economic output in 2022, a significant increase from 62.2 per cent in 2019. In response, the Politburo, a top decision-making body of the ruling Communist Party, pledged in late July to introduce measures to reduce local government debt risks.

Gopinath called for coordinated fiscal framework reforms and balance-sheet restructuring at the central government level to address local government debt strains, close fiscal gaps, and control the flow of debt.

Furthermore, she stressed the necessity of a comprehensive strategy to reduce the debt level of local government financing vehicles (LGFVs), which were originally established to fund infrastructure investments but now present a substantial risk to China's slowing economy, with their combined debt reaching approximately $9 trillion.

To mitigate financial stability risks, Gopinath underlined the importance of improving fiscal transparency and risk monitoring at the local government level. She warned that "financial stability risks are elevated and still rising," highlighting the significance of proactive measures to prevent the emergence of new vulnerabilities in the Chinese economy.

(Inputs from Reuters)

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