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Tuesday, March 5, 2024

IMF cuts China 2023 economic growth forecast to 5% on stifling property crisis

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BEIJING, China—The International Monetary Fund has cut its 2023 economic growth forecast for China to 5.0 percent from 5.2 percent, according to a report published on Tuesday.

With an unprecedented property crisis stifling economic activity and weighing on household confidence, the IMF also slashed its 2024 estimate to 4.2 percent from 4.5 percent.

“China’s growth momentum is fading following a Covid-19 reopening surge in early 2023,” the IMF’s twice-yearly World Economic Outlook said.

“High-frequency indicators suggest further weakness with the property sector crisis in the country leading the factors hampering growth,” it added.

If the IMF’s forecast for this year plays out, it would be in line with Beijing’s own target of “around 5.0 percent”, but softer than the projection in its July report.

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China’s economy expanded just 3.0 percent last year — well below the official target of 5.5 percent — as it was choked by draconian Covid-19 measures.

The country’s key real estate sector generally accounts for around a quarter of GDP, but the industry has lurched from one crisis to another in recent years, with major firms crippled by mountains of debt.

Debt-laden property giant Country Garden said Tuesday that it did not expect to meet all of its offshore payment obligations in time as it teetered towards a potential default.

Its competitor Evergrande, which has debts hanging over it of more than $300 billion, is on the verge of bankruptcy while its boss faces a criminal probe.

Over the past two years, the debt woes of property groups have fueled mistrust in a sector that was once highly lucrative.

“This is undermining home buyer confidence and prolonging the property sector downturn,” the IMF report warned.

The IMF’s chief economist Pierre-Olivier Gourinchas called for “forceful action” by the Chinese authorities to help struggling property developers with restructuring.

He said this would ensure financial instability does not “spread out into the broader financial system and help restore confidence of households.”

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