IMF upbeat on nation's GDP growth
China is rebounding strongly following the reopening of its economy, which is projected to grow at 5.2 percent this year, with positive effects likely to spread across its borders, the International Monetary Fund said in its World Economic Outlook released on Tuesday.
The IMF's forecast is close to the 2023 GDP growth target of about 5 percent set during last month's annual two sessions.
"With China absorbing about a quarter of exports from Asia and between 5 and 10 percent from other geographic regions, the reopening and growth of its economy will likely generate positive spillovers," the IMF said in the quarterly report.
The document was released at the start of the spring meetings of the IMF and World Bank in Washington that run until Sunday.
Countries with stronger trade links and reliance on Chinese tourism are likely to have even greater positive spillovers, the report said.
After China's COVID-19 restrictions were optimized, multiple outbreaks led to declines in people's mobility and economic activity in the fourth quarter of 2022, compounded by headwinds from property market stresses.
"The Chinese authorities have responded with a variety of measures, including additional monetary easing, tax relief for firms, new vaccination targets for the elderly, and measures to encourage the completion and delivery of unfinished real estate projects," the IMF said.
As COVID-19 waves subsided in January, mobility normalized and high-frequency economic indicators, such as retail sales and travel bookings, started picking up.
There have also been signs of improved monetary conditions as China's broad measure of money supply, or M2, stood at 281.46 trillion yuan ($40.88 trillion) by the end of March, up 12.7 percent year-on-year, according to data from the People's Bank of China, the country's central bank, released on Tuesday. This indicated more accommodative monetary conditions existed to support the economy.
China's credit growth continued to recover in March as new yuan-denominated loans totaled 3.89 trillion yuan, up by 749.7 billion yuan year-on-year. The nation's increment in aggregate social financing — the total amount of financing to the real economy — came in at 5.38 trillion yuan in March, up by 707.9 billion yuan compared with the same period last year, the central bank said.
Globally, economic growth will bottom out at 2.8 percent this year before rising slowly to 3 percent in 2024, a lackluster pace by historical standards, as inflation is stickier than anticipated and financial risks have risen, according to the IMF.
The IMF forecast assumes that the recent financial sector stresses are contained. If further strained, global growth will decline to about 2.5 percent in 2023, according to the institution. This would be the weakest growth since the global downturn of 2001, barring the start of the COVID-19 crisis in 2020 and the 2009 global financial crisis.
Concentrated slowdown
"This year's economic slowdown is concentrated in advanced economies, especially the euro area and the United Kingdom, where growth is expected to fall to 0.8 percent and -0.3 percent this year before rebounding to 1.4 and 1 percent, respectively," Pierre-Olivier Gourinchas, the IMF's economic counselor, wrote in a blog.
Gourinchas, also director of research at the IMF, noted that downside risks dominate and added that the fog around the world economic outlook has thickened.
While global inflation has declined, that mostly reflects the sharp reversal in energy and food prices. But core inflation, which excludes energy and food, has not yet peaked in many countries, he wrote in the blog, published on Tuesday.
He added that year-end core inflation will reach 5.1 percent this year, an upward revision of 0.6 percentage points from the IMF's January update.
In contrast to inflationary pressures faced by major economies such as the United States, China's inflation is at a relatively low level, leaving room for the government to step up necessary macroeconomic policy support in the coming months, experts said.
In March, China's consumer price index, a main gauge of inflation, climbed 0.7 percent year-on-year after a 1 percent rise in February, according to data from the National Bureau of Statistics on Tuesday. The growth in March was an 18-month low, the bureau said.
Gourinchas cautioned that the sharp monetary policy tightening of the last year is starting to have serious side effects on the financial sector.
"Our World Economic Outlook explores a scenario where banks, faced with rising funding costs and the need to act more prudently, cut down lending further. This leads to an additional 0.3 percent reduction in output this year," he wrote.
The latest projections also indicate an overall slowdown in medium-term growth forecasts. Five-year growth projections have declined steadily from 4.6 percent in 2011 to 3 percent in 2023, the lowest forecast since 1990.
Cross-border effects
The IMF listed faltering growth in China as one of the downside risks to the global outlook. A weaker-than-expected recovery in China would have significant cross-border effects, especially for commodity exporters and tourism-dependent economies.
In addition, it said that geoeconomic fragmentation, including developments stemming from Brexit, ongoing US-China trade disputes and conflict in Ukraine, has also contributed to the weaker outlook, as has a slower expected pace of supply-enhancing reforms.
"A fragmented world is unlikely to achieve progress for all, or to allow us to tackle global challenges such as climate change or pandemic preparedness," Gourinchas wrote in the Foreword to the World Economic Outlook. "We must avoid that path at all costs."
