Real estate crisis and fall in foreign demand: the IMF warns that China’s economy generates “high uncertainty”

Employees on a BYD production line in Shenzhen, China (REUTERS/Bobby Yip/File) (Bobby Yip/)

He International Monetary Fund (IMF) warned of the “high uncertainties” that surround their outlook on the chinese economyon which they project a growth of 4.6% this year, due to factors such as crisis in the real estate sector or the fall in foreign demand.

“A deeper-than-expected contraction in the real estate sector could further dampen private demand and confidence, widen fiscal tensions for local governments and result in deflationary pressures and a vicious macrofinancial cycle”, explains the institution’s annual assessment of the state and prospects of the Chinese economy.

The dossier – concluded at the beginning of January – also points to the risks derived from an even greater than expected drop in the demand from abroad, the tightening of global conditions or the increase in geopolitical tensions.

However, the IMF believes China could boost confidence and facilitate a bigger-than-expected rebound in private investment with “decisive political actions” such as faster restructuring in the real estate sector.

An Evergrande sign is seen near residential buildings at an Evergrande residential complex in Beijing, China September 27, 2023. REUTERS/Florence Lo/File
An Evergrande sign is seen near residential buildings at an Evergrande residential complex in Beijing, China September 27, 2023. REUTERS/Florence Lo/File (FLORENCE LO/)

“The ongoing adjustments in the real estate market and the tensions in the public finances of local governments will continue to weigh on private investment and consumer confidence,” warns the document, which speaks of the “need” for more measures and a “well-ordered” strategy to bring the real estate sector to a “new balance”.

Specifically, the Fund recommends accelerating the exit of unviable developers, allocating additional funds to complete unfinished developments, supporting financially viable developers to “repair” their balance sheets, and allowing greater market participation in price adjustments.

More supportive policies

Regarding the debt problems of regional administrations, the organization emphasizes the “need to close their fiscal gaps and contain their debt risks”something for which it proposes measures such as greater risk distribution between the central government and local governments.

With respect to boosting the recovery, the IMF believes that Beijing must opt ​​for a macroeconomic policy that “provide support to short-term activity”reorienting spending towards homes to encourage consumption and expanding the social safety net in a “durable” way, since Chinese families have a savings rate much higher than averagelargely as a precaution.

People queue outside a restaurant on Qianmen Pedestrian Street in Beijing, China, January 26, 2024. REUTERS/Florence Lo
People queue outside a restaurant on Qianmen Pedestrian Street in Beijing, China, January 26, 2024. REUTERS/Florence Lo (FLORENCE LO/)

Likewise, the report recommends further rate cuts and greater flexibility in exchange rates, while celebrating the “emphasis” of the Chinese authorities on trying to find “more sustainable” growth engines.

This same week, the IMF updated its outlook and pointed to Chinese GDP growth of 4.6% in 2024 -0.4 percentage points more than in the October report- and 4.1% in 2025.

According to official data, China grew by 5.2% in 2023, above the target of “around 5%” that the authorities had marked at the beginning of the year.

The president of China, Xi Jinping.  Europa Press/Contact/BENOIT DOPPAGNE/Archive
The president of China, Xi Jinping. Europa Press/Contact/BENOIT DOPPAGNE/Archive (Europa Press/Contact/BENOIT DOP/)

The IMF noted today that this recovery “was driven by domestic demand, especially private consumption, and assisted by supportive macroeconomic measures such as greater flexibility in monetary policy, tax relief for businesses and households, and fiscal spending on disaster relief.” ”.

In the medium term, the institution believes that the growth of the world’s second largest economy will gradually slow down to around 3.5% in 2028 due to factors such as low productivity or aging population.

(With information from EFE)

Source-www.infobae.com