IMF upgrades economic forecast for China’s post-pandemic recovery

The International Monetary Fund has upgraded its economic prediction for India this year, citing a slight improvement in global growth prospects, but warned that China's post-pandemic recovery has slowed down, reported Nikkei Asia.

According to the IMF's July World Economic Outlook update, India remains the world's fastest-growing major economy, with a 6.1 per cent expansion this year, up 0.2 percentage points from the IMF's April forecast.

According to the IMF, India will contribute for around one-sixth of overall world growth this year. According to Tuesday's report, the upward revision was due in part to a stronger-than-expected finish to 2022 from strong domestic investment, as per Nikkei Asia.

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China will be the second-fastest growing global economy this year, at 5.2 per cent, but its recovery from the COVID-19 pandemic is losing steam, according to the IMF, which kept its prediction constant.

The IMF now anticipates global growth of 3 per cent this year, up 0.2 percentage point from April but still falling short of the 3.5 per cent growth recorded in 2022.

The update comes a day after China's Politburo hinted at measures to help the property industry, which the IMF recognised as a risk.

“In China, the recovery following the reopening of its economy shows signs of losing steam, while there are continued concerns about the property sector," said IMF chief economist Pierre-Olivier Gourinchas.

Aside from real estate issues, a slowing global economy means less demand for Chinese goods, further dampening the outlook.

"More could be done, in particular, to make sure that those pre-sold properties are delivered and that there is targeted support to families. That could really raise confidence, strengthen consumption, with positive implications for the region," Leigh said.

Emerging and developing economies, especially those in Asia, will be drivers for global growth this year as advanced economies slow, the IMF report showed, as per Nikkei Asia.

The IMF projects 5.3 per cent growth for emerging and developing economies in Asia this year, compared with 4.5 per cent in 2022.

The so-called ASEAN-5 - Indonesia, Malaysia, the Philippines, Singapore and Thailand -- are projected to grow 4.6 per cent.

Meanwhile, the United States is expected to expand 1.8 per cent this year, down from 2.1 per cent in 2022, while the eurozone will decelerate dramatically from 3.5 per cent in 2022 to 0.9 per cent this year. Japan is expected to increase 1.4 per cent this year, making it one of the few advanced economies that will outperform in 2023.

Since the IMF's last outlook report in April, the World Health Organisation has pronounced the COVID-19 health emergency to be over, economic activity has been better than projected, and fears of a banking crisis have subsided as a result of fast action in the United States and Switzerland.

"Yet growth remains low by historical standards. And while some adverse risks have moderated, the balance remains tilted to the downside, and it is too early to celebrate," Gourinchas said.

Inflation is subsiding but core inflation -- which excludes the food and energy sectors -- remains well above central banks' targets and is expected to remain unchanged in advanced economies this year, according to the IMF.

"Clearly, the battle against inflation is not yet won," Gourinchas said.

While the global economy avoided many of the worst-case scenarios offered by hazards in the first half of the year, the IMF feels the overall balance still favours the downside.

Longer term, the IMF continues to provide warnings about climate change and geopolitical fragmentation, as tensions between the United States and China exacerbate a separation into hostile economic blocs.

"We already see direct investment increasingly being determined by geopolitical proximity between countries rather than geographical proximity, so you're likely to invest more in countries that are geopolitically close rather than just nearby," Gourinchas said.

Climate change and geopolitical fragmentation are predicted to disproportionately impact emerging and developing economies, which rely on a unified global economy and direct investment and are also more vulnerable to rising temperatures.

"On all these issues, multilateral cooperation remains the best way to ensure a safe and prosperous economy for all," Gourinchas said, Nikkei Asia reported.