The International Monetary Fund (IMF) has revised its GDP growth forecast for China for both 2023 and 2024, citing a robust post-COVID recovery and policy measures. The IMF now expects China's economy to grow by 5.4% in 2023, an increase from earlier estimates. This revision was announced on Tuesday, November 7, 2023, following an Article IV mission.
The upward revision for 2023 comes on the heels of impressive Q3 results. The National Bureau of Statistics reported that China’s GDP expanded by 5.2% year-on-year in the first three quarters of 2023, with a significant surge of 4.9% in the third quarter alone, marking a 1.3% increase from the previous quarter.
Gita Gopinath, IMF’s deputy managing director, confirmed China's progress towards its annual growth target and attributed this robust recovery to several policy measures. These include a large sovereign bond issue approved by China and interventions in the property market, allowing local governments to frontload their 2024 bond quotas as an economic stimulus.
Despite the positive outlook for 2023, Gopinath also warned that China's GDP growth could dip to 4.6% in 2024 due to issues in the property sector and lower external demand. However, this still surpasses the IMF's previous prediction of 4.2% for the same period.
Looking further ahead, it is anticipated that China's aging demographic and low productivity could reduce growth to around 3.5% by 2028. Gopinath underscored China's need for macroeconomic stability in light of these challenges.
Meanwhile, stress in the real estate sector continues with financials revealing an average Return on Equity (RoE) of -113.4% and a debt-to-capital ratio of 474.4% in the first half of 2023 for ten firms. Bond downgrades have soared to 38 this year, with bonds being sold at substantial markdowns.
The People's Bank has responded by implementing a 20 basis points cut to the Prime Lending Rate, bringing it down to 3.45%. A CNY1.0 trillion (USD137 billion) sovereign bond issuance was also sanctioned. Further interventions in the beleaguered real estate sector have been recommended.
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