After the end of the strict Corona policy, China’s economy has regained strength. But growth is expected to weaken in the medium term. There are several reasons for this.
The ongoing real estate crisis and subdued foreign demand are weighing on China’s economy. According to a forecast by the International Monetary Fund, the country’s economy will grow more slowly this year than last year, the Washington-based International Monetary Fund (IMF) announced. Accordingly, the IMF expects growth of 4.6 percent for 2024, compared to 5.4 percent in the previous year.
The economy of the second largest economy recovered again after the end of the strict zero corona policy. According to the IMF, the upswing was driven by strong domestic demand, loose monetary policy and tax relief.
However, the IMF predicts weaker growth in the coming years. For 2028, the fund assumes growth of only 3.4 percent. Weak productivity and an aging population created headwinds, it said. According to the forecast, inflation is also expected to rise. However, the risks with regard to the outlook are great, according to the IMF. An unexpectedly strong contraction in the real estate sector could further weigh on private demand.
“Market-friendly structural reforms” required
While the IMF welcomed China’s “strong recovery” from the pandemic, it stressed that the ongoing adjustment in the real estate market would continue to weigh on private investment and consumer confidence. The real estate sector in China is an important pillar of growth. A court in Hong Kong recently ordered the dissolution of the heavily indebted real estate group China Evergrande. Beijing is trying to stabilize the market and has relaxed regulations for housing purchases and loans.
The IMF made it clear that “market-friendly structural reforms” were needed to reduce risks to the forecast. Additional funding would need to be made available to complete housing and the government would need to help developers adapt to a smaller property market. This should make a stronger market-based price adjustment possible. In general, with regard to the economy, it is important that China reduce trade restrictions.
Source: Stern
