China recovering faster than most big economies: IMF
WASHINGTON: China is recovering fast ahead of most large economies, but the recovery is still unbalanced and facing significant downside risks, the IMF has said, projecting an 8% growth rate for the world’s second largest economy in 2021.
However, the main concern around the Chinese recovery that the International Monetary Fund (IMF) has is the lack of balance, said Hlge Berger, mission chief for China and assistant director, Asia and Pacific department of the IMF.
The recovery is still relying mostly on public support. Private investment has strengthened recently, but consumption is lagging. Growth rates and consumption recently have been higher, but the level of consumption compared to its pre-crisis trend is still rather low, he told reporters during a conference call on the publication of the 2020 China Article IV Staff Report.
“China is recovering fast ahead of most large economies, but the recovery is still unbalanced and facing significant downside risks. We are seeing growth at around 2% in 2020 and around 8% in 2021. December numbers have been surprising on the upside, so there are some upside risks to that forecast,” said Berger.
On the other hand, he said that there are significant downside risks. Domestically, there is a pandemic risk that is still around. Also, the external environment has generally become a little bit more difficult for China and its economic rela
tions with other countries.
“This is a large reason for the fact that we think that there’s still an output gap this year of 1.8%. That’s the difference between what the economy potentially can have in terms of GDP and what we are actually expecting in terms of demand. So, that’s where this lack of balance comes in, and this has important implications for the way macro policies should be conducted,” Berger said.
In the short term, he said, the IMF does not withdraw macroeconomic policy support prematurely in China. And this is the advice that other countries are getting from the IMF, so this is a bit of a global concern, but it applies to China as well.
“The second implication of our analysis of the outlook and the risks around it is that we need to make sure that we adjust the composition of macroeconomic support away from investment towards household support. This will directly help consumption. This has implications, of course, for our policies to strengthen the social safety net,” Berger said.