IMF says China's economic activity rebounded in 2023

Beijing, China – China's economic activity rebounded in 2023 following the POST-COVID reopening with real GDP estimated to have grown broadly in line with the authorities' growth target of around 5%, the executive board of the International Monetary Fund (IMF) has said.

The IMF made the statement in a recent press release after concluding its annual Article IV review of the Chinese economy.

According to the statement published on the IMF website, the recovery was driven by domestic demand, particularly private consumption, and assisted by supportive macroeconomic policies, including the further relaxation of monetary policy, tax relief for firms and households, and fiscal spending on disaster relief.

The statement said that while inflation fell in 2023, largely due to decreased energy and food prices, it is expected to increase gradually to 1.3% in 2024 as the output gap narrows and the base effects of commodity prices recede.

Decisive policy action, including accelerated restructuring in the property sector, could boost confidence and lead to a betterthan-expected rebound in private investment, the statement said.

'Looking ahead, growth is projected to slow to 4.6% in 2024 amid the ongoing weakness in the property sector and subdued external demand. Over the medium term, growth is projected to gradually decline further and is projected at about 3.5% in 2028 amid headwinds from weak productivity and population ageing,' IMF said.

While inflation fell in 2023 largely on account of lower energy and food prices, it is expected to increase gradually to 1.3% in 2024 as the output gap narrows and the base effects of commodity prices recede, the IMF said.

However, the IMF said that uncertainty surrounding the China outlook is high, particularly given the existing large imbalances and associated vulnerabilities.

It said, 'Deeper-than-expected contraction in the property sector could further weigh on private demand and worsen confidence, amplify local government fiscal strains, and result in disinflationary pressures and adverse macro-financial feedback loops.'

The IMF welcomed the Chinese authorities’ efforts to contain risks from the property market and underscored the need for additional measures in a comprehensive, well sequenced strategy to facilitate a smooth transition of the property sector to a new equilibrium.

The IMF also called for accelerating exit of non-viable property developers, allocating additional funding for housing completion, assisting viable developers to repair their balance sheets and adapt to a smaller property market, and allowing for greater market-based price adjustment.

IMF projects China's economic growth to slow to 4.6% in 2024 amid ongoing weakness in the property sector and subdued external demand