IMF downgrades China's growth forecast, predicts GDP decline

The International Monetary Fund (IMF) has revised its growth projections for China, downgrading its expectations for 2023 and 2024 due to a weakening recovery and concerns in the property sector.

China, the world's second-largest economy, is now anticipated to grow by 5% in 2023 and 4.2% in 2024, a decrease from the IMF's earlier April forecast of 5.2% and 4.5%, respectively. The IMF's regional economic outlook report, released on Wednesday, highlighted that China's recovery has been losing momentum, particularly with the manufacturing sector showing signs of contraction and ongoing challenges in the real estate industry.

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The report also cautioned that an extended correction in China's housing market could lead to greater financial stress among property developers and a decline in asset quality. This could potentially result in a 1.6% decrease in China's gross domestic product (GDP) compared to the baseline by 2025, impacting global GDP by a 0.6% reduction relative to the baseline.

On a brighter note, the IMF's outlook for Asia and the Pacific in 2023 remains positive, labeling the region as "the most dynamic" globally. The agency maintains its growth projection for the region at 4.6% in 2023, emphasizing that economic activity in the region is set to contribute significantly to global growth this year. However, growth is expected to moderate to 4.2% in 2024 and further to 3.9% in the medium term, partly due to China's structural slowdown and decreased productivity growth in other economies in the region.

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A positive aspect for Asia is disinflation, with the region (excluding Japan) expected to reach central bank inflation targets by the end of the next year, outpacing the rest of the world. Nevertheless, the IMF advises central banks in the region to be cautious about prematurely easing monetary policies, emphasizing the need for strong financial supervision and monitoring of systemic risks to maintain financial stability.