The International Monetary Fund on Tuesday maintained its growth forecast for China at 5.2 percent for this year, saying the country’s reopening raised hopes for “positive spillovers” to the rest of the world.
China’s stringent zero-Covid policy, characterised by sudden lockdowns, travel curbs, mass testing and factory shutdowns, had battered the economy for almost three years before it was abruptly abandoned in December 2022. “As Covid-19 waves subsided in January of this year, mobility normalised, and high-frequency economic indicators — such as retail sales and travel bookings — started picking up,” the IMF wrote in its World Economic Outlook report. “The reopening and growth of (China’s) economy will likely generate positive spillovers, with even greater spillovers for countries with stronger trade links and reliance on Chinese tourism,” it added.
Last year China’s economy grew by only three percent, one of the weakest showings in decades. Excluding the years of the pandemic, the IMF’s prediction of 5.2 percent growth for 2023 and 4.5 percent for 2024 would still mark China’s slowest pace of growth since 1990. China itself has set a target of five percent growth for 2023, although last month Premier Li Qiang warned that even this figure could be difficult to achieve. One major reason for this is the shaky property sector, which along with construction accounts for about a quarter of China’s GDP.
Many developers are struggling to survive after authorities tightened their access to credit in 2020 to reduce debt. Uncertainty over Covid-19 and the woes of Evergrande, a titan of the industry now on the verge of bankruptcy, have helped a fall in demand for property, with prices declining in many cities. “Although the Chinese authorities have recently stepped up their support to the sector, the share of property developers in need of restructuring remains large, and the loosening of lending standards could exacerbate financial stability risks,” the IMF report said.
The real estate sector played a key role in China’s recovery after the first wave of the pandemic in 2020. It is also an important source of revenue for local governments, whose finances are stretched after years of massive spending on fighting Covid. “With a substantial share of economies’ exports absorbed by China, a weaker-than-expected recovery in China would have significant cross-border effects,” the report said. China is expected to account for about a third of global growth this year, IMF Managing Director Kristalina Georgieva said last month in Beijing.