The International Monetary Fund has sounded a warning about the deteriorating condition of China’s property market as it reduces its economic growth forecasts for the country. In its latest report the IMF reduced its growth estimate for China this year to 4.8 percent from 0.2 percentage points down from its estimate in July. For 2025, growth is forecast at 4.5 percent.
The IMF stressed that the contraction in China’s real estate sector is an important downside risk to both the national and global economic outlooks. The report, therefore, pointed out that deteriorating conditions in the property market threaten more price corrections led by falls in sales and investments. This leaves room for deeper impacts if the situation persists. Historical precedents include property crises in Japan during the 1990s and in the United States in 2008. Sustained downturns can decrease consumer confidence levels, pushing consumption by households down and shrinking domestic demand as a whole.
However, the People’s Republic of China came out with a stimulus package to help stimulate growth. In September, the People’s Bank of China cut the reserve requirements of banks, and major cities like Guangzhou and Shanghai came up with new plans that are seen to boost the sentiment of homebuyers in China. Meanwhile, the country’s Minister of Finance mused that his government may increase its debt and deficit to help revive the economy.
With these recent measures by the government, according to IMF Chief Economist Pierre-Olivier Gourinchas, steps in the right direction have been taken, though these measures haven’t been fully included in the IMF’s growth projections at the moment. Cautious optimism shall have to prevail since the new policies may make, on the upside, a little increase in economic output a possibility, but such would add a layer of complication to the disappointing third quarter performance.
The IMF also pointed out risks that government stimulus activities may pose. Expansionary increases in public spending to offset weaknesses in domestic demand may place added pressures on public finances. Targeted subsidies to support export development could increase trade tensions with third parties.
In a nutshell, though the Chinese government is indeed trying as much as it can do to reduce the blow of shrinking property markets and fuel growth, the IMF warns and updates its forecasts, emphasizing hard and sustainable policy measures in the midst of continued economic uncertainty.
