China’s economic outlook is dimming, IMF further lowered growth

The International Monetary Fund (IMF) further lowered its growth forecast for China’s economy in 2022 to 3.2% from its earlier estimate of 3.3%, saying the country’s slowdown, the Ukraine war and inflation triggered by aggressive US monetary tightening are the three main headwinds facing the global economy. According to its latest World Economic Outlook, the Washington-based institution also cut China’s forecast for next year from 4.6 per cent to 4.4 per cent. China’s economic outlook is dimming due to a number of factors, including Beijing’s inflexible “zero-Covid policy”, a property sector downturn and a volatile geopolitical situation. That will impact the rest of the world, according to the IMF, given China accounts for one-fifth of the global economy and is integral to supply chains. As China is not expected to change its “Zero COVID policy” even after the 20th Congress of the ruling Communist Party beginning on October 16 in Beijing, this challenge is likely to continue. 
Some 43 per cent of the world will experience at least two consecutive quarters of negative growth next year, the IMF said, while revising down the 2023 global growth forecast by 0.2 percentage points to 4.4 per cent. It kept this year’s estimate unchanged at 3.2 per cent. “In short, the worst is yet to come, and for many people 2023 will feel like a recession,” the report said. The IMF warned that China’s property sector crisis will not only cause a cash crunch, but damage consumer spending and the balance sheets of local governments. “This would be a large blow, given that the real estate sector makes up about one-fifth of GDP in China,” the report said.
In addition, frequent lockdowns aimed at stamping out coronavirus outbreaks have damaged the local and global economy, by weakening demand and putting pressure on supply chains. “The impact of the pandemic is perhaps most keenly felt in China, where intermittent lockdowns in parts of the country have continued to affect economic activity,” the report said. Many foreign business chambers have repeatedly aired their worries about declining business sentiment in China owing to the uncertainty caused by zero COVID policy.The IMF said Chinese authorities should hedge systemic financial risk by restructuring troubled property developers, and boost vaccination rates for the elderly to replace zero-Covid controls – a recommendation frequently given by many foreign business chambers operating in China.