IMF raises China’s GDP to 8.4%, but Gita Gopinath says growth is unbalanced
The IMF has raised China’s GDP projection to 8.4% for this year, a 10-year high, but its chief economist Gita Gopinath has warned that the economic growth of the world’s second-largest economy is unbalanced and consumption private sector had not recovered as quickly as expected from the coronavirus crisis.
The International Monetary Fund has also urged China to deal with its high levels of corporate debt resulting from the easy monetary policy put in place during the coronavirus pandemic.
In its latest issue of the World Economic Outlook published in Washington, the IMF estimated China’s growth in 2021 at 8.4%, up 0.3 percentage point from its January forecast.
Its projection for China’s economic expansion for 2022 remains unchanged at 5.6%, state media reported here on Wednesday.
The IMF’s forecast for China, although much higher than those of other major economies including the United States, Germany and France, is lower than the 12.5% growth rate for India in 2021. The projection of 8.4% is higher than the target of 6% set by the Chinese government for this year.
The Chinese economy, which was the first to be affected by the coronavirus pandemic and to recover early from its impact, grew 2.3% in 2020, recording the lowest annual growth rate in 45 years.
The gross domestic product (GDP) of the world’s second-largest economy grew 2.3 percent to $ 15.42 trillion in 2020, according to data released by the National Bureau of Statistics of China (NBS).
In local currency, GDP exceeded the 100 trillion yuan threshold to 101 5986 billion yuan.
“As global growth is stronger, you have more exports. The US bailout will also increase demand for Chinese products, ”said Gita Gopinath, IMF chief economist and research director.
However, she viewed China’s growth as somewhat unbalanced.
“It still depends heavily on public investment. And private consumption has not recovered as quickly as we would have hoped, said Gopinath, as quoted by the Hong Kong-based South China Morning Post.
To “make this recovery a sustainable recovery, we hope that fiscal and other support measures will help support the recovery coming from the private sector, as opposed to the public sector,” she added.
Sino-US tensions that remain high on several fronts, ranging from international trade to intellectual property and cybersecurity, were also mentioned in the report.
“National economic disparities resulting from the pandemic recession may also lead to new trade barriers Amid already high levels of trade restrictions, such measures would add to inefficiencies and weigh on the recovery. In addition, risks of protectionist trends around technology are emerging, ”the IMF report indicates.
The IMF has also advised China to tackle more its high levels of corporate debt that result from the easy monetary policy put in place during the coronavirus pandemic.
“China, of course, has emerged from the crisis faster than any other country. The actions that have been taken have been very swift and very effective, said Tobias Adrian, IMF financial adviser, when the report was released.
“But the measures that have been deployed have led to [a] further increase in leverage and vulnerabilities, he said in the Post.
Chinese financial authorities, IMF financiers said, should refrain from providing easy access to capital to limit the risk of corporate debt.
Vulnerabilities in China were particularly due to riskier corporate borrowers, according to an IMF report on global financial stability released on Tuesday.
China has made it easier for businesses to borrow during the pandemic to keep them and the economy afloat. Businesses large and small borrowed at a rapid pace and loans went to many struggling businesses.
The country’s debt-to-GDP ratio rose to 266.4% at the end of the third quarter in 2020, from 245.4% a year earlier, according to the Chinese Academy of Social Sciences (CASS), an affiliate group at the Council of State. Tank. He expects the ratio to reach 275% for 2020 as a whole.
This exacerbated the debt problem that existed before the pandemic, the Post said.
Before Covid, many Chinese companies received favorable prices on their bonds and loans due to implied guarantees, as governments at different levels provided support to local borrowers to attract investors.
Among debt issued by companies that had suffered two years of operating losses before the pandemic, more than two-thirds had credit spreads that implied a relatively low risk of default, according to the report.
Spreads, the difference in yield between government and corporate debt, were distorted by the government’s implied guarantee, not the strength of the company, according to the report.
Several unexpected failures of state-owned companies in the fourth quarter of 2020 raised investor concerns about presumed collateral for weaker borrowers. This has started to translate into an increase in future default risks, according to the report.
The China Banking and Insurance Regulatory Commission (CBIRC) warned in July last year that potential financial risks remain high, while urging to take precautions in advance in the event of a possible surge in NPLs ( NPL).
In a statement, the committee listed several apparent risks and challenges, including the growth of non-performing loans, the deterioration in asset quality at small and medium-sized financial institutions and the resurgence of shadow banking.