China should shift government spending to benefit households, ease monetary policy further and take more actions to help the property sector in 2023, according to the International Monetary Fund (IMF).
Authorities need to prevent a premature policy tightening and also accelerate structural reforms such as levelling the playing field between state-owned and private enterprises to lift long-term growth prospects, the IMF said in a report released on Friday (Feb 3).
The IMF sees a “recovery for an economy that’s still operating below potential” in 2023, said Sonali Jain-Chandra, the mission chief for China, during a press briefing on Friday. “Additional monetary easing is needed,” and inflation pressure are muted, she said.
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Services sector activities have rebounded quickly this year after the abrupt exit from Covid zero policy in December led to a swift peak in infections, although the recovery of the industrial sector has been muted due to the Lunar New Year holiday. The IMF projects the Chinese economy will expand 5.2% this year, up from 3% in 2022, driven by a rebound in private consumption.
That expected recovery in Chinese demand after the reopening was one reason the fund raised the projection for global growth earlier in the week.
The impact on global inflation from China’s economic reopening and rebound will be “limited” as energy prices have been declining and will stay lower than projected, according to Thomas Helbling, the IMF’s deputy director for the Asia and Pacific department.
The increase in China’s imports will be stronger among services rather than goods, he said, and the recovery of outbound tourism will have a strong spillover impact on neighbouring Asian countries such as Thailand and the Philippines.
Source: Bloomberg
