IMF cuts China growth forecast for 2021 and 2022

Oct 13, 2021


CHINA'S economy will grow slower than initially expected this year owing to a "stronger-than-anticipated" pull-back in public spending, the International Monetary Fund (IMF) forecast on Tuesday (Oct 12) while warning that a weakening property market could bring a further blow.

The 8.0 per cent prediction in the IMF's latest World Economic Outlook report is down 0.1 percentage points from its July estimate as analysts warn China is facing a painful fallout from real estate weakness and shocks from surging coal prices and shortages. The figure is still China's strongest growth rate since 2011.

The world's second-largest economy was the only major one to expand last year after the coronavirus pandemic forced global lockdowns.

The IMF also lowered its outlook for next year to 5.6 per cent.

Concerns over China have intensified in recent weeks as government curbs on the property market piled pressure on over-leveraged developers - notably Evergrande.

Measures by local governments to meet short-term climate targets also led to a power crunch.

On Tuesday, the IMF said: "China's prospects for 2021 are marked down slightly due to stronger-than-anticipated scaling back of public investment." The downward adjustment 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: "Large-scale disorderly corporate debt defaults or restructuring, for instance in China's property sector, could reverberate widely."

The travails of Evergrande, which is struggling with more than US$300 billion in liabilities, have thrown a spotlight on China's property developers - after Beijing introduced metrics to cap debt ratios last year.

While analysts generally believe the firm's problems will not trigger a "Lehman moment", many warn they will worsen a slowdown in the property sector, which accounts for a massive part of the Chinese economy.

The IMF added that an escalation of trade and technology tensions between the US and China could "weigh on investment and productivity growth, raising additional roadblocks in the recovery path".