IMF Cautions on Worsening State of China’s property Market
The International Monetary Fund (IMF) has raised concerns about China’s property market, warning of a possible worsening state as they revised their growth expectations for the country. The IMF has trimmed its forecast for China’s growth in 2021 to 4.8%, 0.2 percentage points lower than their previous projection in July. Looking ahead to 2025, growth is predicted to be 4.5%.
Potential Downside Risks for Global Economic Outlook
The IMF report emphasizes that China’s contracting property sector is just one of multiple risks the global economy may face. The report explains how historical property crises, such as those seen in Japan in the 1990s and the United States in 2008, prompted price corrections. If not addressed, China’s property crisis could result in further price adjustments, leading to lower consumer confidence and reduced household consumption and domestic demand.
China’s Efforts to Boost Economic Growth
In a bid to support its dwindling economic growth, China has implemented several measures in recent months. In September, the People’s Bank of China announced stimulus measures, such as reducing the amount of cash required by banks. Subsequently, China’s top leaders acknowledged the decline in the property sector and called for measures to halt the slump and promote recovery. Cities like Guangzhou and Shanghai have also introduced initiatives designed to bolster homebuyer sentiment.
Exploring Additional Policy Changes and Stimulus
Suggestions of more stimulus emerged earlier this month when China’s Minister of Finance hinted at increasing the country’s debt and deficit. Lan Fo’an indicated that further support was forthcoming and that policy changes could be introduced concerning debt and the deficit. The housing ministry in China subsequently expanded its “whitelist” of real estate projects and accelerated bank lending for ongoing developments.
IMF’s Perspective and Revised Projections
Pierre-Olivier Gourinchas, chief economist at the IMF, affirmed that some of China’s recent support measures were factored into their latest projections, but he expressed caution about their impact. He suggests that while the more recent support measures could provide some upside risk in terms of output, their effectiveness is yet to be determined. China’s recent economic performance in Q3 fell below expectations, leading to the need for increased support. Gourinchas stated the likelihood of sufficient support, but stated it remains uncertain.
China’s Q3 GDP growth was reported at 4.6%, slightly surpassing the median forecast of 4.5% predicted by economists surveyed by Reuters. The IMF warns that government stimulus to counter domestic demand weakness might strain public finances further. Additionally, targeted subsidies in specific sectors to boost exports may worsen trade tensions with China’s trading partners.
Conclusion
The IMF’s warning highlights the challenges facing China’s property market and its potential impact on the global economy. China’s measures to revive economic growth, including support from the People’s Bank of China, pledges from top leaders, and initiatives implemented by major cities, demonstrate the country’s determination to address the property sector’s decline. However, uncertainties remain regarding the effectiveness of such measures and the need for continuous support. It’s crucial for both Chinese authorities and international stakeholders to monitor the situation closely.
