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IMF predicts positive spillovers from China’s economic growth in 2023

BusinessIMF predicts positive spillovers from China's economic growth in 2023

According to the International Monetary Fund (IMF), China’s economy is projected to grow at a rate of 5.2 percent this year following the reopening of its economy. The positive effects of this growth are likely to spread across its borders, as China absorbs about a quarter of exports from Asia and 5 to 10 percent from other geographic regions. The IMF’s forecast is close to the 2023 GDP growth target of about 5 percent that was set during last month’s annual two sessions. The reopening and growth of China’s economy are expected to generate positive spillovers, particularly for countries with stronger trade links and a reliance on Chinese tourism.

After COVID-19 restrictions in China were optimized, multiple outbreaks led to declines in people’s mobility and economic activity in the fourth quarter of 2022. However, the Chinese authorities responded with a variety of measures, including additional monetary easing, tax relief for firms, new vaccination targets for the elderly, and measures to encourage the completion and delivery of unfinished real estate projects. As a result, mobility normalized in January, and high-frequency economic indicators, such as retail sales and travel bookings, started picking up.

China’s credit growth also continued to recover in March, with new yuan-denominated loans totaling 3.89 trillion yuan, up by 749.7 billion yuan year-on-year. The nation’s increment in aggregate social financing, the total amount of financing to the real economy, came in at 5.38 trillion yuan in March, up by 707.9 billion yuan compared to the same period last year.

While global economic growth is expected to bottom out at 2.8 percent this year before rising slowly to 3 percent in 2024, a lackluster pace by historical standards, the IMF warns that the recent financial sector stresses need to be contained for this forecast to hold. If not, global growth will decline to about 2.5 percent in 2023, the weakest growth since the global downturn of 2001, barring the start of the COVID-19 crisis in 2020 and the 2009 global financial crisis.

The IMF also lists faltering growth in China as one of the downside risks to the global outlook. A weaker-than-expected recovery in China would have significant cross-border effects, particularly for commodity exporters and tourism-dependent economies.

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