The IMF upgrades China’s 2023–2024 GDP growth forecasts. The International Monetary Fund revised its prior projection of 5% growth and projected that China’s economy will grow 5.4% this year after a “strong” post-COVID rebound. Next year, the IMF expects weaker growth.
The IMF noted that sustained instability in the real estate market and muted foreign demand may limit GDP growth to 4.6% in 2024, which was still higher than the 4.2% prediction in its October World Economic Outlook (WEO). The increased revision came after China assisted the economy by approving a 1 trillion yuan ($137 billion) national bond offering and allowing local governments to frontload a portion of their 2024 bond quotas.
IMF First Deputy Managing Director Gita Gopinath stated in Beijing, “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.”
During the medium term, Gopinath stated during a press conference to commemorate the release of the fund’s “Article IV” analysis of China’s economic policies that growth would progressively decline to about 3.5% by 2028 due to headwinds from poor productivity and an aging population.
China has taken several steps to boost the real estate industry. Still, more is required, according to her, to ensure a speedier recovery and lower economic expenses to reduce its size to one that is more sustainable.
“For the real estate sector, such a policy package will need, among other things, speeding up the exit of property developers that can not make money, getting rid of barriers to housing price adjustments, and increasing central government funding for finishing homes,” Gopinath said.
Economists predict that the housing market slump and the debt crisis facing local governments will eliminate much of China’s capacity for long-term growth.
Local debt increased from 62.2% in 2019 to 92 trillion yuan ($12.6 trillion) in 2022, or 76% of China’s economic output. The Communist Party’s highest decision-making body in China, the Politburo, said in late July that it will take steps to lower the risks associated with local government debt.
“The central government should implement coordinated fiscal framework reforms and balance-sheet restructuring to address local government debt strains, including closing local government fiscal gaps and controlling the flow of debt,” Gopinath stated.
She said that to lower the debt burden of local government finance vehicles (LGFVs), China should also create a thorough restructuring plan. Although local governments established LGFVs to finance infrastructure projects, their cumulative debt has ballooned to almost $9 trillion, making them a significant danger to China’s faltering economy.
Gopinath cautioned that to stop new vulnerabilities from arising, “local governments must improve their fiscal transparency and risk monitoring, as financial stability risks are elevated and still rising.”
