THE INTERNATIONAL MONETARY FUND has upped its forecast of China’s growth rate this year to 8.4%, an increase of 0.3 percentage points from its January forecast.
The latest number is included in the IMF’s newly published World Economic Outlook. However, the Fund is holding its 2022 forecast unchanged at 5.6%.
For the global economy as a whole, the IMF has raised its forecast to 6% for this year and 4.4% for next, increases of 0.5 and 0.2 percentage points respectively from January’s forecasts.
Beyond 2022, the Fund expects global growth rates to moderate further, in part because China’s growth will be slowed by ‘necessary rebalancing to a sustainable growth path’, with Beijing scaling back the forceful public investment central bank liquidity support that facilitated the early and robust recovery from Covid-19.
However, the IMF expects only a mild tightening in 2021 of last year’s sizeable fiscal expansion, while monetary policy is expected to remain supportive this year and gradually tighten to around neutral in 2022.
Prominent among the downside risks to the forecasts are tensions between the United States and China that remain elevated on numerous fronts, including international trade, intellectual property, and cybersecurity.
The Fund also makes a passing nod to the medium-term demographic challenge that will face China (and others) as its population ages:
Global growth is expected to moderate to 3.3 percent over the medium term—reflecting projected damage to supply potential and forces that predate the pandemic, including aging-related slower labor force growth in advanced economies and some emerging market economies.
The need to clear the middle-income trap is bearing down fast on Beijing.
Update: At the press conference for the IMF’s latest Fiscal Monitor, fund officials repeated the need for structural reform:
Quite importantly, going forward, China can use fiscal policy to facilitate the transformation to a new growth model in China, a model that relies less on investment in public infrastructure, relies more on private consumption and support to households. In that context, strengthening social safety nets in China and reforming the tax system are important opportunities for progress.
Nothing new in the IMF’s line, or much out of line with Beijing’s own long-term plans. The question remains timing.