China GDP: IMF says 5.2 per cent economic growth possible this year after Covid-battered 2022

IMF’s World Economic Outlook Update, released Tuesday, also reflects a much more optimistic outlook for US economy than was expected three months ago
Nonetheless, a number of downside risks originating from China could still adversely affect the global economy in 2023

China GDP

Erika Na

Published: 9:30am, 31 Jan 2023

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The International Monetary Fund has upgraded its forecast for China’s 2023 gross domestic product (GDP) to 5.2 per cent, owing to the nation’s full reopening, and such growth is expected to have significant implications as the broader global economy is expected to slow as a result of inflation and the continued impacts of the Ukraine war.

The US and India, for instance, are expected to see their year-on-year economic growth rates slow to 1.4 and 6.1 per cent, respectively – down from last year’s growths of 2 and 6.8 per cent, according to the IMF’s World Economic Outlook Update released on Tuesday.

The world’s second-largest economy fell short of expectations last year as it grew by just 3 per cent. This marked the first time in more than 40 years that China’s GDP failed to reach the global average, which was roughly 3.4 per cent for 2022, the IMF said.

“The restrictions and Covid-19 outbreaks in China dampened activity last year. With the economy now reopened, we see growth rebounding to 5.2 per cent this year as activity and mobility recover,” said Pierre-Olivier Gourinchas, the IMF’s chief economist.

Pent-up demand that accumulated during China’s strict handling of the pandemic could lead to a stronger rebound in the country, the report noted.

Still, there are a number of downside risks originating from China that will impact the global outlook. One of which is the country’s economic recovery stalling due to the rampant spread of Covid-19 since last month. The Chinese population’s immunity levels remain low, and many hospitals have been struggling to handle the subsequent surge in patients, especially outside major urban areas.

Another major source of vulnerability for the global economy is China’s strained real estate market. Weak consumer demand and supply-chain issues could also have spillover effects on the rest of the world.

Therefore, the Chinese government’s policy priorities should revolve around addressing adverse risks, the report said, noting how China should improve vaccination rates among vulnerable groups and keep offering booster shots, while also ensuring a sufficient supply of antiviral medications for the populace.

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The IMF also pointed out the need for China’s policymakers to address its property crisis and reduce the risks of spillover effects that threaten financial stability and growth.

Beijing has indeed put this matter high on its agenda, with state media reporting this month that top financial regulators had drafted a package of 21 major tasks aimed at alleviating a liquidity crunch for what Beijing deems “good quality developers”. This includes 450 billion yuan (US$66.3 billion) worth of financing, on top of debt extensions.

The IMF further projected that China’s annual economic growth rate will fall to 4.5 per cent in 2024 before settling below 4 per cent over the medium term, as business dynamism subsides and slow progress on structural reforms is expected.

The [global economic] outlook is less gloomy than in our October forecast, and could represent a turning point

Pierre-Olivier Gourinchas, IMF

The IMF expects global economic growth to fall from the estimated 3.4 per cent in 2022 to 2.9 per cent in 2023, then rise to 3.1 per cent in 2024. This latest forecast for 2023 is 0.2 percentage points higher than what was predicted in October.

“The global economy is poised to slow this year, before rebounding next year. Growth will remain weak by historical standards, as the fight against inflation and Russia’s war in Ukraine weigh on activity,” Gourinchas said.

“Despite these headwinds, the outlook is less gloomy than in our October forecast, and could represent a turning point, with growth bottoming out and inflation declining.”

Although the growth projection is below the historical annual average of 3.8 per cent, negative growth in global GDP is not expected, the report said. Negative growth often takes place during global recessions.

The US also saw its IMF forecast improve since October, when it had expected the world’s largest economy to grow by just 1 per cent in 2023, year on year.

The more optimistic change to 1.4 per cent reflects the carry-over effects from domestic demand resilience in 2022, the report said. American consumers continued to spend from their savings in the final quarter of 2022. In 2024, the US’ economic growth rate is projected to be 1 per cent.

And India’s economic growth, although also expected to be down from last year, could ride a wave of domestic demand in 2024 and reach 6.8 per cent, the IMF said.