By Xinghui Kok
SINGAPORE (Reuters) – The International Monetary Fund (IMF) downgraded its 2023 and 2024 growth forecasts for China, saying its recovery was “losing steam” and citing weakness in its property sector.
The world’s second-largest economy is expected to expand by 5% this year and 4.2% next year, down from 5.2% and 4.5% in the IMF’s April forecast, the institution said in a regional economic outlook report released on Wednesday.
“In China, the recovery is losing steam, with manufacturing purchasing managers’ indexes entering contracting territory from April to August and conditions in the real estate sector weakening further,” said the report.
The report projected that a prolonged housing market correction in China would in the near-term “trigger greater financial stress among property developers and larger asset quality deterioration”.
The impact of that could cause China’s gross domestic product (GDP) to decline by as much as 1.6% percent relative to the baseline by 2025, while world GDP would decline by 0.6% relative to the baseline, it added.
The IMF’s 2023 outlook for Asia and the Pacific was brighter, with IMF calling it “the most dynamic region this year”.
The agency maintained its earlier growth projection for the region at 4.6% in 2023 and said economic activity in the region was on track to contribute around two-thirds of global growth this year.
Growth in Asia and the Pacific, however, is expected to slow to 4.2% next year. The IMF expects it to further moderate to 3.9% in the medium-term — the lowest in the past two decades except for 2020 — as China’s structural slowdown and weaker productivity growth in many other economies weigh on the region.
Disinflation was a bright spot for Asia, with the region excluding Japan expected to return to respective central bank inflation targets by the end of next year.
“This puts Asia ahead of the rest of the world, which, in general, will not see inflation returning to target until at least 2025,” it said.
Central banks in the region, however, should guard against easing monetary policy prematurely, the IMF added.
“Central banks should carry through with policies to ensure that inflation is durably at appropriate targets. As tight monetary conditions can place strains on financial stability, strengthening financial supervision, vigilant monitoring of systemic risks, and modernising resolution frameworks are critical.”
(Editing by Kanupriya Kapoor)
