IMF sees signs of China stabilising, says reforms can boost medium-term growth

The International Monetary Fund said yesterday it sees some signs of stabilisation in China’s economy from recent data, but believes the country can accelerate growth over the medium term if it takes steps to reform its economy to rebalance from investment toward consumer spending.Chief spokesperson Julie Kozack told a regular news briefing that the IMF still believes China can achieve around 5% growth this year, with detailed projections due when the IMF publishes its World Economic Outlook during IMF-World Bank annual meetings in Marrakech, Morocco on October 10. The Fund sees China’s GDP growth slowing to about 3.5% over the medium term, but this can be accelerated with economic reforms, she added.The IMF view is roughly in line with private forecasters as China’s recovery from Covid-19 lockdowns falters and a massive downturn in its property sector weighs on consumer demand. There is also a debt overhang from a decades-long infrastructure binge and depressed private firms have been reluctant to invest. Some analysts see growing risk that China will drift into an era of Japan-like stagnation with an ageing population and slowing productivity growth.China’s slowdown has some government advisers in Beijing calling for deeper reforms, while others are advocating more robust state spending to bolster growth. Kozack said that after a major slowdown since the first quarter of 2023, "very recent data has been a bit more mixed with some signs of stabilisation”. "We expect that China’s growth will slow to around 3-1/2% against the backdrop of demographic headwinds and slowing productivity growth,” Kozack said."But we also think that higher growth over the medium term is within reach for China. China should seize the opportunity to rebalance its economy through short-term macroeconomic policy support and medium term reforms.”The IMF believes it is "vital” for its shareholders to reach a deal this year to increase its quota-based lending resources to deal with growing global economic shocks, Kozack said yesterday.Kozack told a regular press briefing that the Fund’s quota review will be a hot topic at the IMF-World Bank annual meetings next month in Marrakech. This will include a US proposal for IMF member countries to contribute more quota funds in proportion to their current shareholdings, without altering the current formula, she said.