China is rebounding strongly following the reopening of its economy, which is projected to grow at 5.2% this year, with positive effects likely to spread across its borders, the International Monetary Fund (IMF) said in its latest World Economic Outlook. The IMF’s forecast is close to the 2023 GDP growth target of about 5% set during last month’s National People's Congress (NPC) meeting. “With China absorbing about a quarter of exports from Asia and between 5% and 10% from other geographic regions, the reopening and growth of its economy will likely generate positive spillovers,” the IMF said in the quarterly report. The document was released at the start of the spring meetings of the IMF and World Bank in Washington. Countries with stronger trade links and reliance on Chinese tourism are likely to have even greater positive spillovers, the report said. After China’s Covid-19 restrictions were optimized, multiple outbreaks led to declines in people’s mobility and economic activity in the fourth quarter of 2022, compounded by headwinds from property market stresses. “The Chinese authorities have responded with a variety of measures, including additional monetary easing, tax relief for firms, new vaccination targets for the elderly, and measures to encourage the completion and delivery of unfinished real estate projects,” the IMF said.
As Covid-19 subsided in January, mobility normalized and high-frequency economic indicators, such as retail sales and travel bookings, started picking up. There have also been signs of improved monetary conditions as China’s broad measure of money supply (M2) stood at CNY281.46 trillion by the end of March, up 12.7% year-on-year, according to the People’s Bank of China (PBOC). This indicated that more accommodative monetary conditions existed to support the economy. China’s credit growth continued to recover in March as new yuan-denominated loans totaled CNY3.89 trillion, up by CNY749.7 billion year-on-year. Globally, economic growth will bottom out at 2.8% this year before rising slowly to 3% in 2024, a lackluster pace by historical standards, as inflation is stickier than anticipated and financial risks have risen, according to the IMF. The IMF forecast assumes that the recent financial sector stresses are contained. If further strained, global growth will decline to about 2.5% in 2023.
“This year’s economic slowdown is concentrated in advanced economies, especially the euro area and the United Kingdom, where growth is expected to fall to 0.8% and -0.3% this year before rebounding to 1.4% and 1%, respectively,” Pierre-Olivier Gourinchas, IMF's Director of Research, wrote, noting that downside risks dominate and that the fog around the world economic outlook has thickened. Global inflation has declined, mostly reflecting the sharp reversal in energy and food prices. But core inflation, which excludes energy and food, has not yet peaked in many countries, he wrote. He added that year-end core inflation will reach 5.1% this year, an upward revision of 0.6 percentage points from the IMF’s January update. In contrast to inflationary pressures faced by major economies such as the United States, China’s inflation is at a relatively low level, leaving room for the government to step up necessary macro-economic policy support in the coming months, experts said. In March, China’s consumer price index (CPI) climbed 0.7% year-on-year after a 1% rise in February, according to the National Bureau of Statistics (NBS). The growth in March was an 18-month low.
The IMF listed faltering growth in China as one of the downside risks to the global outlook. A weaker-than-expected recovery in China would have significant cross-border effects, especially for commodity exporters and tourism-dependent economies. In addition, it said that geo-economic fragmentation, including developments stemming from Brexit, ongoing U.S.-China trade disputes and conflict in Ukraine, has also contributed to the weaker outlook, as has a slower expected pace of supply-enhancing reforms. “A fragmented world is unlikely to achieve progress for all, or to allow us to tackle global challenges such as climate change or pandemic preparedness,” Gourinchas wrote in the Foreword to the World Economic Outlook. “We must avoid that path at all costs,” he added, as reported by the China Daily.
World Bank Group President David Malpass said that due to the improved outlook for China’s recovery, the World Bank has revised upward China’s growth prospects for this year, from 4.3% to 5.1%, while the latest OECD report raised China’s economic growth outlook to 5.3%.
