IMF keeps annual growth estimates unchanged
Enduring property market slump still a drag despite positive news on GDP
Even after Beijing reported a better-than-expected rise in China’s quarterly economic growth, the International Monetary Fund has 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 this year – below Beijing’s 5 per cent target – the IMF yesterday pointed to concerns over an enduring property market slump.
Meanwhile, this year’s growth estimate for the United States’ 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 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 said.
The warning came at a time when the property market, which according to the IMF 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 by 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 the National Bureau of Statistics yesterday.
First-quarter floor space sold dropped by 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 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 will follow suit.
“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.”
The property crisis would remain a major challenge this year even as other economic indicators were starting to 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”.
The economic stimulus announced by Beijing last month was “uninspiring”, Murphy Cruise said, and consumers were “keeping their wallets closed”.
Beijing has accelerated the construction of affordable housing, urban villages and emergency facilities to offset the investment decline among private developers.
It also extended more funding support for developers earlier this year by establishing a whitelist mechanism in which banks received recommendations from city governments on projects that were considered financially sound and fit for further loan support.
The IMF also warned that China-US trade links were already “weakening”, with China’s share of American goods imports down by almost 8 percentage points from 2017 to 2023.
A larger and more prolonged drop in real estate investment could occur IMF IN WORLD ECONOMIC OUTLOOK