The world’s second-largest economy is expected to grow 5% this year and 4.2% next year, compared with 5.2% and 4.5% in the IMF’s April forecast, the institute said in a report on the regional economic prospects published on Wednesday.
“In China, the recovery is losing steam, with industrial purchasing managers indexes entering contraction territory from April to August and conditions in the real estate sector further weakening,” the report said.
The report predicted that a prolonged correction in China’s housing market would “cause greater financial tensions among property developers and greater asset quality deterioration” in the short term.
The impact of this could see China’s gross domestic product (GDP) decline by as much as 1.6% percent from the base case in 2025, while global GDP would decline by 0.6% from the baseline. base case, it added.
The IMF’s outlook for Asia and the Pacific for 2023 was rosier, with the IMF calling it “this year’s most dynamic region.”
The agency maintained its previous growth forecast for the region at 4.6% in 2023 and said economic activity in the region was on track to contribute about two-thirds of global growth this year.
However, growth in Asia Pacific is expected to slow to 4.2% next year. The IMF expects medium-term interest rates to moderate further to 3.9% – the lowest level in the past 20 years, with the exception of 2020 – as China’s structural slowdown and weaker productivity growth in many other economies are weighing on the region.
The disinflation was a bright spot for Asia, with the region, excluding Japan, expected to return to central banks’ respective inflation targets by the end of next year.
“This puts Asia ahead of the rest of the world, where inflation generally won’t return to target until 2025,” the report said.
However, central banks in the region should beware of prematurely easing monetary policy, the IMF said.
“Central banks must continue with policies to ensure that inflation remains at the right level on a sustainable basis. As tight monetary conditions can put pressure on financial stability, strengthening financial supervision, vigilant monitoring of systemic risks and modernizing resolution frameworks are crucial.”
