The IMF says China shouldn’t tighten its macroeconomic policies too soon.
Officials from the International Monetary Fund (IMF) said on Friday that China shouldn’t tighten its macroeconomic policies too soon because its economy is still not doing as well as it could, even though it has recovered from COVID-19.
“Key structural reforms should be re-accelerated to increase China’s potential growth,” the officials told reporters during an online news conference on Friday, when they released their annual report on the Chinese economy.
In its report, the IMF praises China for how it dealt with the pandemic at first, but it also says that the same things that caused economic growth to slow down a lot in 2022 could hurt the economy this year if they aren’t fixed.
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The report lists a number of things to worry about, such as China’s failing real estate market, its shrinking population, its slowing productivity growth, and the lack of information about the possibility of new COVID variants.
The world’s second-largest economy will grow by 5.2% this year, according to the IMF’s most recent forecasts, which were released on January 31. In 2022, it will only grow by 3%. That was the worst performance in almost 50 years, if you don’t count the 2.2% growth when COVID hit in 2020.
Thomas Helbling, deputy director of the fund’s Asia and Pacific department, said that China’s economy is “still operating below potential.” He also said that “the support provided in 2022 will end” and that the IMF recommends that China take a “neutral fiscal stance” and shift spending to households.
The State Council, which is China’s cabinet, promised on January 28 to help the recovery of consumption, which is a big part of what drives the economy.
During the call, IMF officials pushed China’s leaders to make big changes to the economy’s structure, like making sure private and state-owned businesses can compete on an even playing field. “Without reforms, we expect growth to drop below 4% over the next five years,” they said.
Helbling told reporters about the state of the global economy that “the global impact (of China’s re-opening) on inflation should be limited.” He also said that supply chain bottlenecks involving China could last until 2023 and affect the prices of commodities around the world, but “on balance, the rebound in China will be a net positive.”
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IMF officials expect a big rise in Chinese travel and tourism outside of China in 2023, as well as a rise in domestic consumption, especially in industries like catering that “are still operating well below capacity.”