BEIJING (Reuters) – The International Monetary Fund (IMF) raised its growth forecast for China on Tuesday, now expecting gross domestic product (GDP) to rise by 5% this year and 4.6% annually. next, thanks to a “strong” post-pandemic recovery, but the organization highlights the medium-term slowdown of the world’s second largest economy and the risks linked to debt.
Last month, the IMF lowered its 2023 and 2024 forecasts for the Chinese economy to 5% and 4.2% respectively, estimating that the recovery in activity was losing steam, mainly due to the country’s real estate crisis and weak external demand.
Tuesday’s upward revision follows China’s decision to approve a 1 trillion yuan ($137 billion) sovereign bond issue and allow local authorities to advance part of their quotas. bonds for 2024 to support the economy.
“These projections reflect upward revisions of 0.4 percentage points in 2023 and 2024 compared to projections published in October in the Fund’s World Economic Outlook, due to stronger than expected performance in the third quarter and recent economic policy announcements”, writes Gita Gopinath, Deputy Managing Director of the IMF, quoted in a press release.
In the medium term, however, growth should gradually slow down to around 3.5% by 2028, due to unfavorable elements linked to low productivity and the aging of the population, she adds.
OTHER NECESSARY INITIATIVES
China has adopted several measures to support its key real estate market, but more initiatives are needed to ensure a faster recovery and reduce economic costs during the transition phase, explained Gita Gopinath.
According to her, there should be a comprehensive set of measures aimed in particular at quickly divesting from unviable real estate developers and removing obstacles linked to the adjustment of real estate prices. It also recommends that the central government mobilize additional funds to complete real estate programs and that it helps viable developers to restore their balance sheets and adapt to a smaller real estate market.
According to economists, the slowdown in the real estate sector combined with local government debt could weigh on a large part of China’s long-term growth potential.
Local government debt reached 92 trillion yuan ($12.6 trillion), or 76% of China’s economic output in 2022, compared to a rate of 62.2% in 2019.
The Politburo, the governing body of the ruling Chinese Communist Party (CCP), indicated in late July that it would announce a set of measures aimed at reducing local government debt risks.
“The central government should implement coordinated fiscal framework reforms and balance sheet restructuring to resolve local government debt problems, including closing loopholes in local government taxation and controlling debt flow “, notes Gita Gopinath.
China will also need to implement a comprehensive restructuring strategy to reduce the debt level of local government financing structures (LGFVs), she added.
LGFVs were created by local governments to finance infrastructure investments, but they now represent a major risk to China’s slowing economy, with their cumulative debt having reached around $9 trillion.
(Reporting Joe Cash and Ryan Woo, Jean-Stéphane Brosse and Claude Chendjou for the , edited by Blandine Hénault)
Copyright © 2023 Thomson Reuters
I have over 8 years of experience working in the news industry. I have worked as a reporter, editor, and now managing editor at 247 News Agency. I am responsible for the day-to-day operations of the news website and overseeing all of the content that is published. I also write a column for the website, covering mostly market news.
