IMF Lowers China Growth Forecast

Screenshot of IMF's World Economic Outlook web page, accessed January 26, 2022

THE INTERNATIONAL MONETARY FUND Fund has sharply lowered its forecast for China’s economic growth in 2022, pointing to the continuing ‘retrenchment of the real estate sector and slower-than-expected recovery of private consumption’.

In its newly published update to its World Economic Outlook, the Fund is forecasting GDP growth of 4.8% for the year, 0.8 of a percentage point lower than its previous forecast in October.

The IMF says that disruption in the housing sector has been a prelude to a broader slowdown.

With a strict zero-COVID strategy leading to recurrent mobility restrictions and deteriorating prospects for construction sector employment, private consumption is likely to be lower than anticipated.

For 2023, the IMF sees a modest recovery to 5.2% growth, but that is still one-tenth of a percentage point less than anticipated in October.

The main downside risk that the IMF sees is the crisis in the property sector dragging on as policymakers continue to lower the debt level in the economy.

The baseline assumes a significant moderation in real estate investment growth in 2022, reflecting continued tight policies to rein in risks related to leveraged property developers. If the real estate slowdown intensifies further and balance sheet stresses spread beyond property developers, exposed banks and other financial intermediaries may be forced to shrink credit to the broader economy. Such an outcome would hold back investment and consumption, dragging overall growth lower with adverse implications for commodity exporters and other emerging markets.

Should that happen it would have spillover effects in the region. Emerging-market assets are already under pressure from inflation, the policy outlook and expected monetary tightening by the US Federal Reserve.

Overall, the IMF expects global growth to slow to 4.4% this year from 5.9% in 2021, which is half a percentage point lower for this year than in its October outlook.

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One response to “IMF Lowers China Growth Forecast

  1. Pingback: China’s January PMIs Confirm Slowing Growth | China Bystander

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