IMF: China's growth to stay 'resilient' at 5%

First-quarter data, policy measures lead to 0.4% rise over fund's April economic outlook

China's economic growth is projected to "remain resilient" at 5 percent this year, driven by its strong first-quarter data and recent policy measures, the International Monetary Fund said on Tuesday after its team concluded a visit to the country.

That forecast reflects an upward revision of 0.4 percentage point, compared with the IMF's World Economic Outlook 2024 projections released in April.

For next year, the world's second-largest economy is expected to grow at 4.5 percent, also a 0.4 percentage point-higher revision, the IMF team said in its preliminary findings issued at the end of the 2024 Article IV Consultation trip to China, led by Sonali Jain-Chandra, IMF's China mission chief.

The consultation, based on Article IV of the IMF's Articles of Agreement, usually involves bilateral discussions between the IMF and a member to assess the latter's economic health and financial risks.

"China's economic development over the past few decades has been remarkable, driven by market-oriented reforms, trade liberalization and integration into global supply chains," IMF First Deputy Managing Director Gita Gopinath said in a statement.

Gopinath joined the policy discussions and met with Chinese government and banking officials during the consultation.

She said that China's achievements have been accompanied by "imbalances and rising vulnerabilities", and headwinds to growth have emerged.

"Recognizing these challenges, the authorities have focused on achieving high-quality growth by supporting innovation, especially in green and high-tech sectors, upgrading financial sector regulations and introducing some policies to mitigate property and local government risks," she said.

However, a more comprehensive and balanced policy approach would help China navigate headwinds facing the economy, she added.

In the statement, the IMF noted that China's inflation is expected to rise but stay low as output remains below potential, with core inflation increasing only gradually to average 1 percent in 2024.

It said that over the medium term, growth is expected to decelerate to 3.3 percent by 2029 due to aging and slower productivity growth.

Furthermore, the risks to growth are tilted to the downside, including a greater or longer-than-expected property sector adjustment and increasing fragmentation pressures, according to the statement.

Gopinath said that the ongoing housing market correction, which is necessary for steering the sector toward a more sustainable path, should continue.

She said China's authorities have implemented various "welcome" measures to guide the property market transition, including recent policy announcements regarding lending support for affordable housing.

"A more comprehensive policy package would facilitate an efficient and less costly transition while safeguarding against downside risks," she said.

The IMF statement also noted that China faces "significant" fiscal challenges, especially for local governments.

"To tackle elevated financial stability risks, the authorities have appropriately focused on addressing vulnerabilities in the property sector, local government debt and smaller financial institutions," Gopinath said.

Strengthening the bank resolution framework and strictly applying prudential standards will help enhance financial stability and mitigate risks, she added.

She also said that achieving high-quality growth will require structural reforms to counter headwinds and address underlying imbalances.

Key priorities include rebalancing the economy toward consumption by strengthening the social safety net and liberalizing the services sector to enable it to boost growth potential and create jobs, according to Gopinath.

Domestic consumption contributed 73.7 percent to China's economic growth in the first quarter, which expanded overall by 5.3 percent year-on-year, following 5.2 percent GDP growth recorded in the fourth quarter of last year, according to data from the National Bureau of Statistics.

The figures are above the annual growth target of around 5 percent set for this year, indicating the fundamentals of China's macroeconomy remained solid, according to Wang Guanhua, spokesperson for the National Bureau of Statistics.

Following China's robust first-quarter performance, a group of organizations, such as Goldman Sachs, Citigroup and Bank of America, have all raised their outlook for the country's full-year GDP growth to 5 percent.