IMF Upgrades China’s 2023 and 2024 GDP Growth Forecasts, According to Reuters

By Joe Cash and Ryan Woo

BEIJING – China’s economy is projected to grow by 5.4% this year, reflecting a strong recovery post-COVID, according to the International Monetary Fund (IMF). This is an increase from its previous forecast of 5% growth, although growth is expected to slow in the following year.

The IMF noted that ongoing weaknesses in the property sector and diminished external demand may limit the country’s gross domestic product growth to 4.6% in 2024, a modest improvement over its previously estimated 4.2% for that year.

This upward adjustment comes after China announced a 1 trillion yuan ($137 billion) sovereign bond issuance and allowed local governments to advance part of their bond quotas for 2024, aimed at stimulating economic activity.

"We have raised our growth projection by 0.4 percentage points for both years compared to our October forecasts, driven by unexpectedly strong growth in the third quarter and new policy support recently announced," stated Gita Gopinath, the IMF’s First Deputy Managing Director, during a news conference in Beijing.

In the medium term, growth is expected to gradually decrease to around 3.5% by 2028, facing challenges from weak productivity and an aging population, Gopinath said while presenting the fund’s review of China’s economic policies.

Despite multiple measures introduced to bolster the property sector, more action is required to ensure a more rapid recovery and reduce economic costs associated with bringing the sector to a sustainable size. Gopinath suggested that a comprehensive policy package would need to include the accelerated exit of unviable property developers, removal of barriers to housing price adjustments, and increased funding from the central government for housing completions, among other initiatives.

Economists warn that the dual challenges of the property sector downturn and local government debt could significantly diminish China’s long-term growth potential. Local government debt has surged to 92 trillion yuan ($12.6 trillion), equating to 76% of China’s GDP in 2022, up from 62.2% in 2019. In late July, China’s Politburo indicated it would introduce measures to mitigate local government debt risks.

"To address the strains of local government debt, the central government should implement coordinated fiscal reforms and restructure balance sheets, including closing fiscal gaps and controlling debt flow," Gopinath advised.

Furthermore, she stressed the need for a robust restructuring strategy to lower the debt levels of local government financing vehicles (LGFVs), which were established to fund infrastructure investments but now pose a significant risk to the slowing economy, with their combined debt reaching approximately $9 trillion.

Gopinath emphasized the necessity of improving local government fiscal transparency and risk monitoring to avert the emergence of new vulnerabilities, noting that financial stability risks are currently high and still rising.