Chinese flags for sale on Nanjing East Road in Shanghai, China, Wednesday, Oct. 2, 2024.
Qilai Shen | Bloomberg | Getty Images
The International Monetary Fund (IMF) warned of a possible deterioration in China’s property market as it cut growth expectations for the world’s second-largest economy.
In a report Published on Tuesday, the IMF cut its forecast for growth in China this year to 4.8%, 0.2 percentage points lower than its July forecast. In 2025, growth is expected to reach 4.5%, according to the IMF.
The Washington-based organization also highlighted that China’s property sector shrinking more than expected is one of several downside risks to the global economic outlook.
“Conditions for the real estate market could worsen, with further price corrections amid shrinking sales and investment,” the report said.
Historical property crises in other countries such as Japan (in the 1990s) and the US (in 2008) show that if the crisis in China is not addressed, prices could correct further, the IMF’s World Economic Outlook noted. This in turn could reduce consumer confidence and reduce household consumption and domestic demand, the agency explained.
China has announced the introduction of various measures aimed at boosting its slowing economic growth in recent months. In September, the People’s Bank of China announced a support plan, including reducing the amount of cash banks are required to hold.
Just days later, China’s top leaders said they aimed to stop the slump in the property sector, saying its decline must be stopped and recovery encouraged. Major cities including Guangzhou and Shanghai also unveiled measures aimed at boosting homebuyer sentiment.
China’s finance minister earlier this month hinted that the country had room to increase its debt and deficit. Lan Fo’an indicated that more stimulus was on the way and that policy changes around the debt and deficit could be coming soon. China’s housing ministry has meanwhile announced that it is expanding the “white list” of real estate projects and speeding up bank lending for these unfinished developments.
Some measures by the Chinese authorities have already been included in the IMF’s latest projections, Pierre-Olivier Guerinhas, the IMF’s chief economist, told CNBC’s Karen Cho on Tuesday.
“They’re certainly going in the right direction, it’s not enough to move the needle from the 4.8% we forecast for this year and 4.5% for next year,” he said, noting that the latest measures are still under evaluation and have not been integrated into the organization’s views so far.
“These [the more recent support measures] could provide some upside risk in terms of manufacturing, but this is the context in which the third quarter of Chinese economic activity has disappointed on the downside, so we have this tension between, on the one hand, the economy not doing as well , and then there is a need for support. Will there be enough support? We don’t know yet,” Gurrinhas said.
China last week reported third-quarter gross domestic product growth of 4.6 percent, slightly higher than the 4.5 percent expected by economists in a Reuters poll.
In its report, the IMF also noted potential risks to the economic measures.
“Government incentives to address weak domestic demand would put further pressure on public finances. Subsidies in some sectors, if aimed at boosting exports, could exacerbate trade tensions with China’s trading partners,” it said. service.