Chinese flags were spotted for sale along Nanjing East Road in Shanghai, China, on Wednesday, October 2, 2024.
Shen Qilai | Shen Qilai Bloomberg | Getty Images
The International Monetary Fund (IMF) has issued a caution regarding the potential decline of the real estate market following China’s revised growth predictions for the world’s second-largest economy.
A report published on Tuesday revealed the IMF adjusted its growth forecast for China this year to 4.8%, reflecting a decrease of 0.2 percentage points from its earlier July estimate. Projections suggest a further slowdown to 4.5% by 2025.
The Washington D.C.-based organization emphasized that China’s real estate sector is contracting more severely than anticipated, presenting various risks to the overall global economic outlook.
The report stated, “Conditions in the property market may deteriorate as additional price adjustments take place amid falling sales and investments.”
According to the IMF’s World Economic Outlook, historic real estate crises in nations like Japan in the 1990s and the U.S. in 2008 could prompt further price declines unless China’s current challenges are addressed. Such declines could undermine consumer confidence, which in turn would reduce household spending and domestic demand, as pointed out by authorities.
Recently, China has initiated various policies intended to revitalize its struggling economic landscape. In September, the People’s Bank of China launched several support initiatives, which included decreasing the reserve requirements for banks.
Shortly after, Chinese officials declared their commitment to reversing the downturn in the real estate market, emphasizing the significance of curtailing its decline to stimulate recovery. Major urban centers like Guangzhou and Shanghai have also unveiled strategies to enhance the sentiment of homebuyers.
During an announcement earlier this month, China’s finance minister indicated that the nation has the capacity to increase its debt and deficit levels. Prime Minister Lan Foin suggested that additional stimulus measures are forthcoming, along with potential policy shifts regarding debt and deficits. The Ministry of Housing also revealed plans to broaden its “white list” of real estate projects while expediting bank financing for incomplete developments.
Pierre-Olivier Grinchas, the IMF’s chief economist, shared with CNBC’s Karen Tso on Tuesday that some of the recent measures by Chinese authorities have been incorporated into the IMF’s current forecasts.
“Policy is undoubtedly progressing in the right direction, but it’s insufficient to greatly alter our projections of 4.8% for this year and 4.5% for next,” he stated, adding that ongoing measures are under evaluation. He highlighted that these actions have yet to be integrated into governmental forecasts.
“While these newer support initiatives may present some potential for positive output adjustments, they arise amidst weaker economic activity during the third quarter in China. There exists a tension: ‘The economy is struggling, necessitating assistance, yet we are uncertain if the support will suffice,’” Grinchas remarked.
Last week, China reported a third-quarter GDP growth rate of 4.6%, slightly exceeding economists’ predictions of 4.5%, based on a Reuters poll.
The IMF’s report also underscored possible hazards associated with these economic strategies.
“Government-backed stimulus aimed at addressing subdued domestic demand could exacerbate pressures on public finances,” the organization stated. “Targeted subsidies meant to enhance exports might heighten trade tensions with China’s trade partners,” Grinchas noted.
