The International Monetary Fund (IMF) has updated its forecast for China’s economic growth, predicting a 5 percent increase in 2024, up from the earlier estimate of 4.6 percent. However, the IMF has cautioned that this growth is not sustainable in the long run, with expectations that it will slow to 3.3 percent by 2029.
The slowdown is attributed to an aging population and slower productivity growth. The IMF advised China to boost productivity and continue with economic reforms to mitigate these challenges.
The revised growth rate aligns with the Chinese government’s target, but the nation’s economy is still grappling with significant issues. A major concern is the ongoing crisis in the property sector, which has been a crucial part of China’s economy but is now causing widespread problems due to overcapacity.
Just concluded our annual assessment of China's economy. We've raised the growth forecast by 0.4 points to 5% for 2024 and 4.5% for 2025, thanks to strong Q1 data & recent policies. Key priorities include property sector adjustments & macro support for domestic demand. Read my… pic.twitter.com/7gwL7Vysvq
— Gita Gopinath (@GitaGopinath) May 29, 2024
This sector’s downturn has contributed to a general economic slowdown, with progress in the first quarter of 2024 at 5.3 percent, driven by strong GDP data and recent policy measures.
IMF’s First Deputy Managing Director, Gita Gopinath, highlighted the need for structural reforms to address these underlying issues. She stressed that the property sector’s correction is necessary for long-term sustainability but also acknowledged the sector’s role in the current economic difficulties.
The People’s Bank of China recently intervened with a 300-billion-Yuan (approximately USD 42.25 billion) re-lending facility to support the government’s subsidized housing projects and stabilize the market.
Despite these efforts, the IMF remains concerned about China’s economic outlook. Gopinath emphasized the importance of high-quality growth, a concept promoted by Chinese President Xi Jinping, which involves rebalancing the economy towards consumption and liberalizing the services sector. These reforms are crucial for addressing the imbalances and boosting growth potential.
IMF staff have upgraded China's economic forecast by 0.4 percentage points to 5% in 2024 and 4.5% in 2025, driven by strong Q1 data and recent policies. Key policy priorities include facilitating property sector adjustment and supporting domestic demand. https://t.co/aRM9fnIQf0 pic.twitter.com/PiSU20iiw3
— IMF (@IMFNews) May 29, 2024
The IMF also noted China’s responsibility in restructuring the debt of smaller countries and the global concerns over China’s manufacturing overcapacity, particularly in electric vehicles. Gopinath urged China to scale back these policies to avoid further economic imbalances.
ALSO READ: “IMF Forecasts: India-Led Asia to Drive 60% of Global Growth in 2025”
The ruling Communist Party of China is set to discuss measures to boost the economy in an upcoming plenum. However, there is a growing acknowledgment within the party of the grim economic outlook due to insufficient demand and an uncertain external environment.
The IMF’s senior resident representative in China, Steve Barnett, emphasized the need for continued economic reforms to boost productivity. He called for a decisive role for the market in the economy and a level playing field for all types of firms, including state-owned, private, and foreign firms.
Overall, while China may see short-term growth, the IMF’s warnings suggest that significant challenges remain. The nation must undertake substantial reforms to ensure long-term economic stability and address the structural issues that threaten its future progress.
Comments