The IMF has raised its growth forecast for China in 2024, but is concerned about the challenges facing this country on an industrial and budgetary level (AFP/Archives/Olivier DOULIERY)
The International Monetary Fund (IMF) on Wednesday raised its growth forecast for China to 5% in 2024, but is nevertheless concerned about the challenges that remain on the industrial and budgetary levels.
The world’s second largest economy, which is still struggling to recover from the Covid years, is also penalized by a persistent debt crisis in the real estate market, which has long represented around a quarter of the country’s gross domestic product (GDP).
Falling consumer spending and the risk of deflation are also weighing on Chinese economic growth.
But there are now signs of recovery: in the first quarter, growth exceeded expectations, at 5.3% year-on-year, which Chinese authorities called a “good start”.
China, which is still struggling to recover from the Covid years, is also penalized by a persistent debt crisis in the real estate market (AFP/Archives/JADE GAO)
This performance, as well as “recent political measures” by China, decided the IMF to raise its growth forecast for 2024 to 5% on Wednesday, in line with the objective set by Beijing in March. For 2025, the Fund expects 4.5%.
The IMF previously forecast growth of 4.6% this year in China, but it is more optimistic due to measures taken by Beijing in recent weeks to stimulate the real estate market.
“The ongoing correction in the housing market, necessary to steer the sector towards a more sustainable path, is expected to continue,” the organization believes.
However, “a more comprehensive set of measures would facilitate an efficient and less costly transition while protecting against the risks of deterioration” of the market.
– “Poor allocation” of resources –
The Fund also warns against Beijing’s strong support for certain strategic industrial sectors, because this could cause a “misallocation” of resources, harmful to trade.
“Reducing these policies and removing restrictions on trade and investment would increase national productivity and mitigate the risks of fragmentation” of the market, according to the IMF.
US Treasury Secretary Janet Yellen in Washington, April 19, 2024 (AFP/Archives/SAUL LOEB)
China has been under pressure for several months over supposed “overcapacity” in part of its industry. A situation notably denounced by the United States as being the result of excessive subsidies.
US Treasury Secretary Janet Yellen called last week on the G7 to form “a clear and united front” in the face of China’s “industrial overcapacity”, which is generating “macroeconomic imbalances”, calling for “responses” from the affected countries.
The G7 finance ministers announced that they were “considering taking measures” on this subject.
– Needs for “structural reforms” –
In the medium term, “growth is expected to slow to 3.3% due to the aging of the population and the slowdown in productivity gains”, detailed Gita Gopinath, Deputy Managing Director of the IMF, during a press conference in Beijing.
Gita Gopinath, number two of the International Monetary Fund (IMF), speaks during a press conference in Beijing, May 29, 2024 (AFP/WANG Zhao)
The IMF number two also highlighted “the significant budgetary challenges, particularly for local governments”, facing the country, adding “that sustained medium-term budgetary consolidation is necessary”.
Beijing came to the aid of China’s crisis-ridden real estate sector in May by reducing the minimum down payment required for first-time home buyers.
Local governments will also be able to purchase unsold real estate. It is one of the most ambitious measures taken by Beijing to get the sector out of a serious debt crisis, which has pushed many developers into bankruptcy.
Several cities, including Shanghai, have also eased some restrictions on purchasing real estate.
But the IMF said on Wednesday that China needed “structural reforms to combat headwinds and address underlying imbalances.”
“The first priorities are the rebalancing of the economy towards consumption, by strengthening the social safety net and liberalizing the services sector to enable it to stimulate growth potential and create jobs,” underlined the Fund.
© 2024 AFP
Did you like this article ? Share it with your friends using the buttons below.
