IMF Advises China to Exercise Caution in Tightening Macro-Economic Policies

According to the International Monetary Fund (IMF), China must exercise caution when tightening its macroeconomic policies since its economy is still not reaching its full potential despite recovering from the COVID-19 crisis.

At an online conference, the IMF officials emphasized that China must speed up its key structural reforms in order to enhance its potential growth. The IMF report praised China for its handling of the pandemic but noted that unless proper measures are taken, the factors that led to slow economic growth in 2022 may hinder its performance this year.

The report identified several causes for concern, such as China’s struggling real estate sector, declining population, slowing productivity, and the uncertainty of new COVID variants. Thomas Helbling, the deputy director of the IMF’s Asia and Pacific department, stated that China’s economy is “still operating below potential” and emphasized the need for a “neutral fiscal stance” with a shift in spending towards households.

The IMF officials stressed the importance of implementing wide-ranging reforms, such as creating fair competition between private companies and state-owned enterprises, otherwise, growth could fall below 4% in the next five years.

The IMF believes that the global impact of China’s re-opening on inflation will be limited and the rebound will have a net positive effect on the global economy.

The officials expect a significant increase in Chinese outbound travel and domestic consumption in 2023, particularly in contact-intensive industries like catering that are still operating at a low capacity.