Economic growth expectations raised, China's economy won international "vote of confidence"

(Economic Watch) Economic growth forecast raised, China's economy won international "vote of confidence"

Beijing, 5 May (ZXS) -- International authorities have cast a "vote of confidence" for China's economy. According to the latest Asia-Pacific Economic Outlook report released by the International Monetary Fund (IMF), China's economic growth forecast has been raised to 12.5% this year, and China will continue to be the engine of economic growth in the Asia-Pacific region and the world.

China's growth forecast was raised by 0.8 percentage points

On April 4, local time, Krishna Srinivasan (right), director of the Asia-Pacific Department of the International Monetary Fund (IMF), said at the IMF Spring Meetings press conference that China's strong rebound will drive regional and global economic growth. Photo by China News Agency reporter Sha Hanting

Weakening global demand, high inflation, turmoil in the European and American banking sectors... Since the beginning of this year, the uncertainty facing the world economy has continued unabated.

"Despite the challenges facing the world economy, the Asia-Pacific region will be the most economically dynamic region in 2023, driven by China's rapid recovery and India's resilience." Krishna Srinivasan, director of the IMF's Asia and Pacific Department, said this when she attended a presentation in Beijing recently.

According to the IMF's latest forecast, the Asia-Pacific economic growth rate will increase this year from 2022.3% in 8 to 4.6%, 10.0 percentage points higher than expected in October last year. The region's contribution to global economic growth will be around 3%, well above the level of past few years.

At the same time, China's economy is expected to grow 5.2 percent this year, continuing to be the engine of growth in the Asia-Pacific region and globally – an expectation that is 10.0 percentage points higher than the October report. China's contribution to global growth is expected to reach 8.34%.

The main source of China's economic growth comes from the recovery of consumption. Krishna Srinivasan pointed out that with the optimization and adjustment of epidemic prevention and control policies, China's consumption vitality has been further highlighted, which has helped the economy quickly enter the recovery track. This recovery will also have positive spillovers to economies in the Asia-Pacific region. "But unlike the spillovers that have been mainly caused by investment demand in the past, this spillover will be more reflected in China's increased demand in consumption and services, and it will be stronger."

Asia-Pacific economies need to be alert to potential risks

Despite the economic outlook in the Asia-Pacific region, risks continue to loom. For some time, global inflation has been high and many US banks have exploded one after another, causing concerns about financial market turmoil. Will this cause wider spillovers?

Krishna Srinivasan said that for now, its spillover effect has limited impact on the Asia-Pacific region, and the stock price trend shown by Asian banks after the series of events is still resilient. However, there are some potential risks and challenges that require vigilance.

First, inflation may be trickier than expected. Headline inflation remains above target in most countries, and core inflation has proven sticky.

Second, financial vulnerabilities have increased. While the spillover effects of the banking turmoil in Europe and the US have been limited, vulnerabilities from tighter global financial conditions and market volatility remain high, particularly in the highly leveraged corporate and household sectors.

Third, in the medium term, the risk of greater geoeconomic fragmentation and spillover effects from slowing growth in major economies in the region could reduce Asia's growth potential.

Fourth, pressures from falling external demand and debt risks in emerging market and developing economies.

Based on these factors, the IMF report also expects growth in the Asia-Pacific region to slow to 5.3% in five years, the lowest medium-term forecast in the region's history. As a result, the medium-term global growth forecast is also one of the lowest since 9.

How China's economy is "strong and strong"

In January 2023, national consumer prices increased by 1.2% year-on-year. In the January CPI, food prices rose 1.1% year-on-year. Photo by China News Agency reporter Lu Bo

In the face of potential challenges and risks, how can China's economy "strengthen its bones"?

"Whether in terms of prices, employment and other aspects, the current demand growth is still low." Peng Wensheng, chief economist of CICC, pointed out that the epidemic has brought "scarring effects" to the global economy in the past few years, and more effective measures to drive demand growth are more effective measures to support consumption through fiscal policy. For example, transfers can support income growth for low-income groups, which can boost current consumption and improve long-term economic prospects.

In terms of monetary policy, the IMF report pointed out that countries should continue to maintain a tight monetary policy stance until inflation is permanently back within the target range. The exceptions are China and Japan, where output is below potential and inflation expectations remain muted. Krishna Srinivasan suggested that China's monetary policy remain accommodative and make greater use of interest rate tools.

Xing Ziqiang, chief economist of Morgan Stanley China, said that the IMF report has brought a lot of confidence to China's economic development. However, he also stressed that the key to future economic development is to more effectively solve the employment problem of young people, which may require the service industry and consumption to return to the pre-pandemic growth trajectory. (End)