China’s economy will grow at a slower pace than expected earlier this year due to a “strongly-anticipated” pullback in public spending, with the International Monetary Fund warning Tuesday that a weak asset market could spell another blow.
The eight percent forecast in the IMF’s latest World Economic Outlook report is 0.1 percentage points lower than July’s estimate as analysts warn China faces a painful fall from real estate weakness and shocks from rising coal prices and shortages. . But that figure is still China’s strongest growth rate since 2011.
The world’s second-largest economy was the only one to expand last year, when the worldwide coronavirus pandemic forced governments to shut down. The IMF has also lowered its outlook for the next year to 5.6 per cent.
Concerns about China have intensified in recent weeks as government restrictions on the property market have put pressure on overleveraged developers – Evergrande in particular. Power shortages were also caused by measures taken by local governments to meet short-term climate targets.
On Tuesday, the IMF said: “China’s prospects for 2021 are marked down slightly due to stronger-than-anticipated scaling up of public investment.”
The adjustment for the fall is the IMF’s second since April, when it pegged full-year growth at 8.4 per cent.
It also warned of risks that could threaten the resilience of the recovery. “Massively disordered corporate debt defaults or restructurings, for example in China’s property sector, could have widespread resonance,” it said.
The crisis at Evergrande, which is struggling with more than $300 billion in liabilities, has thrown a spotlight on China’s property developers – after Beijing introduced a metric for capping debt ratios last year.
While analysts generally agree that the firm’s problems will not trigger a “Lehmann moment”, many warn that they will worsen the downturn in the asset sector, which accounts for a large part of the Chinese economy. Is.
The IMF said escalating trade and technology tensions between the United States and China “could add additional barriers to the recovery path, weighing on investment and productivity growth”.
If the world’s two largest economies diverge in basic scientific research, there could also be “major negative impacts” on global productivity, starting to decline by an estimated 0.8 percent, it said.
And in the longer term, demographic challenges in China and other emerging markets will add further pressure to reverse the steady decline in long-term growth and build a post-pandemic global economy.
Census results published in May this year show China’s population is growing at its slowest pace in decades, raising concerns of a demographic slowdown in the aging country.
Meanwhile, the IMF expects monetary policy in China to be “moderately tight” in 2021, and for this trend to persist until next year.