IMF lifts China growth outlook but warns on property and trade troubles
Fund sees economy hitting 'around 5%' target in 2024 before slowing in coming years
BEIJING -- The International Monetary Fund on Wednesday raised China's economic growth outlook but said additional policies are required to support its struggling housing market.
The IMF's first deputy managing director, Gita Gopinath, also sounded the alarm over China's growing trade tensions with the U.S. and European Union.
The fund sees "evidence of very quick retaliation" whenever any of these three major economies puts an industrial policy in place, she told a news conference in Beijing. "So we're in this space where there is ... much more risk of having a fragmented trading system."
The latest assessment came after Gopinath met with Pan Gongsheng, governor of the People's Bank of China, and various senior ministry officials during her visit to the country.
The IMF revised China's GDP growth outlook to 5% for 2024 and 4.5% for 2025, both 0.4 of a percentage point higher than its April projections. The upgrades reflect strong first-quarter results and recent policy measures, such as subsidies to encourage consumers to trade in old goods and buy new ones. In the first quarter, GDP grew 5.3%, keeping China on track to meet its growth target of "around 5%" this year.
The IMF projects economic expansion to slow to 3.3% by 2029 due to an aging population and slower productivity growth. "Risks are tilted to the downside, including a greater-than or longer-than-expected property sector adjustment and increasing fragmentation pressures," Gopinath said in a news release.
Chinese authorities have been grappling with a persistent housing market downturn, and the decline in prices accelerated in April in most cities. The souring appetite for property has led to defaults at some of the biggest developers. In mid-May, the central bank announced a 300 billion yuan ($42 billion) financing scheme to encourage local governments to buy unsold commercial homes and convert them into subsidized housing. It also cut down payment requirements and scrapped the floor on mortgage interest rates.
"The ongoing housing market correction, which is necessary for steering the sector towards a more sustainable path, should continue," Gopinath said. She added that while the recent measures seek to address excess inventory of unsold homes, the central government still needs to deal with homes that have been pre-sold but remain unfinished. The IMF suggested the government could either fund the construction of the homes or compensate the buyers.
Fiscal policy should focus on one-time financial support for the property sector, and there is also room for further monetary easing, she added.
At the same time, China faces rising trade friction with the U.S., where the administration announced a major increase in import tariffs on Chinese electric vehicles after accusing Beijing of flooding the market with cheap exports. The European Union is also probing whether Chinese EVs unfairly benefit from subsidies.
Gopinath said industrial policies can be useful but can lead to "distortions" if they are done indiscriminately and on a more permanent basis. She noted that around 3,000 trade restrictions were imposed across the world in 2023, three times the number in 2019, and that severe restrictions on trade could shave 7% off global GDP over the medium term.
Gopinath said scaling back industrial policies to support priority sectors and removing trade and investment restrictions would ease fragmentation concerns.
The Chinese yuan hit a six-month low against the U.S. dollar on Wednesday, highlighting the divergence in monetary policy between the U.S. and China. Gopinath said an exchange rate depreciation could help lift low inflation in China. On whether a weaker currency might lead to even more exports, she said the impact in China's case would be limited if the domestic economy grows and leads to greater services imports.