A woman buys food from a vendor along a road in the central business district of Beijing, China, 17 January 2023. EFE/EPA/FILE/MARK R. CRISTINO

IMF upgrades China’s growth forecast to 5.4% in 2023

Shanghai, China, Nov 7 (EFE).- The International Monetary Fund (IMF) said on Tuesday that the Chinese economy was expected to grow by 5.4 percent in 2023, reflecting a robust post-Covid recovery and marking an upgrade from the previous forecast of 5 percent.

A woman picks oranges inside a grocery store in Beijing, China, 17 January 2023. EFE/EPA/FILE/MARK R. CRISTINO

However, the IMF warned that Chinese growth was likely to slow down to 4.6 percent next year due to ongoing weaknesses in the property market and subdued external demand.

“The Chinese economy is on track to meet the government’s 2023 growth target, reflecting a strong post-Covid recovery,” IMF Deputy Managing Director Gita Gopinath said in a statement.

In its annual assessment of the state and prospects of the Chinese economy, the global lender projected that over the medium term, growth is expected to gradually decline to about 3.5 percent by 2028, due to challenges related to weak productivity and an aging population.

The IMF said China’s credit-fueled growth in recent years had been accompanied by widening imbalances and increasing vulnerabilities.

“Excessively high household savings were used to finance infrastructure and residential investment with diminishing returns, resulting in elevated debt levels,” Gopinath said.

The lender said the rapid expansion in the property sector had led to an oversupply of housing in certain areas while rising prices caused housing affordability pressures in China.

It lauded the government’s efforts to address these issues in the property market but stressed the need to minimize economic costs and contain risks to macro financial stability.

“The authorities have introduced numerous welcome measures to support the property market, but more is needed to secure a quicker recovery and lower economic costs during the transition.”

Gopinath recommended a comprehensive policy package that includes “measures to accelerate the exit of nonviable property developers, remove impediments to housing price adjustment, allocate additional central government funding for housing completion, and assist viable developers to repair balance sheets and adapt to a smaller property market.”

She urged Beijing to 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.

According to IMF estimates, the semi-public entities accumulate a total debt equivalent to about $9 trillion, more than double that of 2017.

“Financial stability risks are elevated and still rising, as financial institutions have lower capital buffers and growing asset quality risks,” Gopinath warned. “To improve financial system resilience and mitigate risks, strict application of prudential policies and a strengthened framework for bank resolution are needed.”

The IMF pointed out that supportive macroeconomic policies were needed to bolster activity amid the needed property sector adjustment and structural reforms to address local government debt.

“China could demonstrate its commitment to an open and rules-based trading system and help reduce fragmentation pressures by scaling back distortions to trade and investment from domestic industrial policies and trade restrictions, which create domestic challenges and global spillovers,” Gopinath noted. EFE