The International Monetary Fund has upgraded its growth forecast for China’s economy to 5% this year, but warned that more consumer-friendly reforms are needed to sustain strong, high-quality growth
The International Monetary Fund (IMF) has upgraded its forecast for China’s economy, while warning that consumer-friendly reforms are needed to sustain strong, high-quality growth.
The IMF’s report said the world’s second-largest economy will likely expand at a 5% annual rate this year, based on its growth in the first quarter and recent moves to support the property sector. That is a 0.4 percentage point above its earlier estimate.
But it warned that attaining sustained growth requires building stronger social safety nets and increasing workers’ incomes to enable Chinese consumers to spend more. The IMF also said Beijing should scale back subsidies and other “distortive” policies that support manufacturing at the expense of other industries such as services.
The ruling Communist Party has set its annual growth target at “around 5%,” and the economy grew at a faster-than-expected 5.3% in the first quarter of the year, boosting the global economy. The IMF said its upgraded forecast also reflects recent moves to boost growth, including fresh help for the property industry such as lower interest rates and smaller down-payment requirements on home loans.
But it said risks remained, with growth in 2025 forecast to be 4.5%, also up 0.4% from an earlier forecast. The IMF has commended the Chinese government’s emphasis on “high quality” growth, which includes increased investment in clean energy and advanced technology, as well as improved financial industry regulation.
However, it also stated that “a more comprehensive and balanced policy approach would help China navigate the headwinds facing the economy.” The IMF report highlighted the financial struggles of many Chinese due to job losses during the pandemic and falling housing prices.
Echoing the views of numerous economists, the report suggested that more needs to be done to establish a social safety net and boost workers’ incomes, enabling Chinese families to save less and spend more. However, the IMF’s long-term forecast was less positive. It predicted that China’s annual economic growth would drop to 3.3% by 2029 due to rapid population ageing, slower productivity growth, and ongoing issues in the housing sector.
The report also warned that the use of industrial policies to support industries such as car manufacturing and computer chip development could waste resources and impact China’s trading partners. This is a key point of dispute between Washington and Beijing, with US officials arguing that China is unfairly supporting its own industries and creating excessive manufacturing capacity that can only be absorbed through exports.
China has dismissed this position, arguing that the US and other affluent countries have used unfounded national security concerns as a pretext to unfairly limit technology exports to China.
