IMF keeps China’s 2024 GDP growth estimate unchanged on ‘troubled property sector’

Even after Beijing reported a better-than-expected rise in China’s quarterly economic growth, the International Monetary Fund opted to keep its full-year expectations unchanged for the country.

In maintaining its presumption that China’s gross domestic product will increase by 4.6 per cent in 2024 – below Beijing’s 5 per cent target – the IMF on Tuesday pointed to persistent concerns over an enduring property market slump.

Meanwhile, this year’s growth estimate for the US economy was revised up by the Washington-based fund, to 2.7 per cent – a 0.6 percentage point increase from its January guess. And India’s GDP growth forecast was also elevated to 6.8 per cent, up 0.3 percentage points.

“Without a comprehensive response to the troubled property sector, [China’s] growth could falter, hurting trading partners,” the IMF said in its flagship publication, the “World Economic Outlook”.

“A larger and more prolonged drop in real estate investment could occur, accompanied by expectations of future house prices declining, reduced housing demand, and a further weakening in household confidence and spending, with implications for global growth,” it explained.

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The warning came at a time when the property market, which the IMF has said used to account for as much as 20 per cent of the nation’s economic activity, continued to drag the recovery.

Despite China’s GDP growth beating market expectations by rising 5.3 per cent in the first quarter, property investment declined by 9.5 per cent in the period – larger than the fall of 9 per cent in the first two months, according to data released by the National Bureau of Statistics on Tuesday.

First-quarter floor space sold dropped 19.4 per cent from a year earlier, while the start of new property constructions plunged by 27.8 per cent, year on year.

China’s housing market issues began in 2020 amid the unprecedented pandemic and as regulators tightened financing policies. This led to billions of US dollars worth of defaults, most notably by Evergrande and Country Garden, and the market has been waiting to see if state-backed developer Vanke could follow suit.



A vanishing fairyland dream: how China Evergrande rose, then crashed

A vanishing fairyland dream: how China Evergrande rose, then crashed

“The authorities’ policy responses could significantly mitigate the economic costs of such developments if they include accelerating the exit of nonviable property developers, promoting the completion of housing projects, and resolving the debt risks of local governments,” the IMF report said.

“Additional monetary-policy easing, especially through lower interest rates, as well as expansionary fiscal measures – including the funding of unfinished housing and support to vulnerable households – could further support demand and ward off deflationary risks.”

China’s property crisis remains a major challenge this year as other economic indicators improve, said Harry Murphy Cruise, an economist with Moody’s Analytics.

Trade, industrial production, and fixed-asset investment all picked up in the first months of the year, he noted, meaning “the property market’s woes are front and centre”.

China’s economic stimulus announced last month was “uninspiring”, Murphy Cruise said, and consumers are “keeping their wallets closed”.

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Beijing has accelerated the construction of affordable housing, urban villages and emergency facilities to offset the investment decline among private developers.

Additionally, it extended more funding support for developers earlier this year by establishing a whitelist mechanism in which banks receive recommendations from city governments on projects that are considered financially sound and fit for further loan support.

The IMF also warned that China-US trade links are already “weakening”, with China’s share of US goods imports down almost 8 percentage points from 2017 to 2023.

The US may be sourcing more goods from Vietnam and Mexico, it added, and this fragmentation could lead to “possible losses in efficiency” along global supply chains.

The fund’s Tuesday outlook further maintained its 4.1 per cent economic growth forecast for China in 2025.



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