The International Monetary Fund (IMF) has cast a shadow of doubt over China’s economic prospects, lowering its 2024 growth forecast to 4.8% from the previously predicted 5%. This revised outlook, while aligning with China’s official target of “around 5%,” underscores the challenges facing the world’s second-largest economy despite recent efforts to stimulate growth.
The IMF points to weakening consumer confidence and persistent issues within the domestic property market as key factors driving the downward revision. They warn that further declines in home prices could exacerbate consumer anxieties, leading to a decline in household spending and ultimately dampening domestic demand. This is a concerning trend, as robust domestic consumption is crucial for China’s economic engine to fire on all cylinders.
Despite these concerns, the IMF does offer a glimmer of hope, predicting a 4.5% growth rate for China in 2025. However, achieving this rebound hinges on addressing the underlying issues currently weighing down the economy.
Both U.S. Treasury Secretary Janet Yellen and IMF chief economist Pierre-Olivier Gourinchas have emphasized the urgent need for China to boost consumer spending as a percentage of GDP. They highlight the fact that China’s central bank and finance ministry have yet to announce policies that could significantly stimulate demand and drive economic growth.
Gourinchas further emphasizes the impact of low consumer spending, aggravated by the property market crisis that has eroded household wealth. This has led to a shift in production towards export markets. While Yellen acknowledges the need to reduce savings and increase spending, she expresses concern that large subsidies for electric vehicles and semiconductors might threaten U.S. manufacturing jobs.
This ongoing dialogue underscores the complexity of navigating the economic relationship between the US and China. As both nations prepare for high-level meetings in Washington, finding common ground on issues related to Chinese industrial capacity will be a key objective.
China’s property market troubles, originating from new regulations implemented in 2020, have resulted in developer defaults and plummeting home prices. This economic slowdown poses risks not only for China but also for advanced and emerging market economies, considering China’s significant role in global trade.
The IMF acknowledges that China’s recent stimulus measures, including interest rate cuts, debt relief, and government bond issuance, could provide some positive momentum. However, they also caution that these measures could place additional strain on public finances.
The economic trajectory of China remains intertwined with the health of its property market and the willingness of consumers to open their wallets. As policymakers grapple with these challenges, the world watches closely, keenly aware of the potential global repercussions.
