IMF May Cut Its China Growth Forecast Chief Says
Despite recent gains in China’s economy, the International Monetary Fund may cut its growth forecasts, the head of the IMF’s China division says. The IMF estimates that growth in China will slow to an annualized pace of 6.7% in the coming two years, down from the previous forecast of 7.1%, due to weakening domestic demand, the IMF says. It also warns that the COVID-19 pandemic, which is ravaging the economy and causing widespread job losses, will continue to worsen.
Global recession concerns mount
Several indicators indicate that global economic growth is on its way down. This includes a sharp slowdown in China and Russia. In addition, the Ukraine war has thrown up prices, and may cut off supplies of natural gas to Europe.
The International Monetary Fund (IMF) has revised its global growth forecast downward, and now believes the world is on the verge of a global recession. In its latest report, the organization predicts that global growth will fall to 2% in 2023, and a 1.9 percent growth rate in the United States in 2023. This is the lowest growth rate in four decades.
The IMF also warns of risks in 2022, with a “possible alternative scenario” of a severe global downturn. The report says that the world’s largest economies are taking unprecedented monetary and fiscal actions.
Among these are the upcoming 20th National Congress of the Communist Party of China, which is expected to anchor the country’s economy towards more cohesive growth. In addition, Beijing’s control over banks and much of the economy suggests a slowdown.
Slowing global demand
Despite a record growth rate, China’s economy is expected to slow down this year. The International Monetary Fund (IMF) is slashing its China growth forecast to just 4%.
The IMF’s forecasts for global growth have become gloomier since April. A global recession is on the horizon, the IMF’s economic counsellor said.
The IMF’s April forecast had projected a 2.2% growth rate for China. This month’s forecast has been downgraded to a 3.2 percent rate. The gloom is also felt in the euro area, where inflation spiked due to the war in Ukraine. This is the result of wide inflationary pressures that have widened out to other sectors, including the consumer and industrial goods sectors.
In April, the IMF forecast for global growth was 3.2 percent, but the latest forecasts have been revised down. The IMF has cut forecasts for several countries. Its forecasts for Japan and Britain were cut by 0.7 percentage points. It also warned about a 30% drop in oil exports from Russia. The war in Ukraine is a major risk, according to the IMF, which warned that it would disrupt activity in the near term.
Despite the global economic growth forecasts, China’s economy continues to fall back. The International Monetary Fund (IMF) is considering reducing its China growth forecast for the next year. Several financial institutions have already cut their growth forecasts for 2022.
The Chinese economy was the biggest draw for short-term foreign investment over the past couple of years. But a sharp slowdown has taken its toll, particularly in the property sector, which makes up roughly one-fifth of the economy. In March, global funds sold $7 billion worth of mainland stocks. This has added to financial strains in the property sector.
In addition to the property sector, Beijing’s “zero-COVID” strategy has been a drag on Chinese growth. Lockdowns have weighed on consumption and private investment. And the country’s fiscal contraction has been much larger than expected.
The IMF is now expecting advanced economies to return to pre-pandemic growth trends by next year. But developing economies are expected to see large permanent output losses, particularly in tourism-dependent economies. China’s growth is expected to slow to 3.2% this year, down from 3.2% in 2018. Its growth forecast for 2023 has been lowered to 4.4%.
Real wages must be driven down even lower
Despite a recent drop in unemployment, real wages have fallen further below their pre-pandemic trend. This is largely due to the strong increase in commodity prices, which dragged employment and led to increased inflation in the past two years.
In order to avoid a wage-price spiral, monetary policy should be tightened more firmly. However, the monetary policy response should also depend on the expectations of wage growth, as well as price expectations. The World Economic Outlook examines these factors to determine the risk of a wage-price spiral.
The IMF staff calculates the average marginal effects of inflation on nominal wage growth. For the sample of 31 advanced and 15 emerging market economies, we computed the effects using the wage Phillips curve regression. The results show that the risks of a wage-price spiral are limited. However, if the impact of a wage-price spiral is severe, the effects can last for longer than would be expected if the inflation rate were lower.