IMF prescribes fiscal support for households

Experts call for more monetary easing, deepening of consumption rebound

China may need to boost fiscal support for households and launch additional monetary easing as the latest economic figures indicate that demand is yet to recover fully, experts at the International Monetary Fund and investment banks said on Thursday.

Krishna Srinivasan, director of the Asia and Pacific Department of the IMF, said China's reopening has led to a strong rebound in consumption in the first quarter and the recovery is expected to continue and be led by services.

Yet the property sector has recovered relatively slowly and may remain subdued, Srinivasan said. Given the prevalence of nearterm downside risks, it will be important for macroeconomic policies to support the recovery.

The IMF recommends that China's fiscal policy remain neutral and avoid premature tightening with support geared toward households, Srinivasan said, adding that monetary policy should remain accommodative in 2023.

"Reducing precautionary savings and boosting consumption will require strengthening the social protection system," he said.

He made the remarks at a news conference on Thursday in Beijing, which was co-organized by the IMF and the China Finance 40 Forum, a think tank. The conference was aimed at introducing the IMF's Regional Economic Outlook: Asia and Pacific, updated this month.

According to the outlook, China's economic growth is projected to rebound to 5.2 percent this year from 3 percent last year, serving as a primary driver of growth in the Asia-Pacific region, which is expected to reach 4.6 percent this year, up from 3.8 percent in 2022.

Yet, experts cautioned that China's economic rebound is partly attributable to last year's low comparison base, and the economy's underlying growth momentum still needs to be consolidated.

"Both price indicators and employment figures show that demand is now relatively subdued," said Peng Wensheng, a CF40 member and chief economist at investment bank China International Capital Corp.

China's consumer price index, a main gauge of inflation, climbed 0.1 percent from a year earlier in April, down from the 0.7 percent rise in March, cooling to the lowest rate since February 2021, the National Bureau of Statistics said on Thursday. Experts said easing inflation is seen as indicative of mild demand in the economy.

Moreover, data from the People's Bank of China, the country's central bank, showed on Thursday that the country's new yuan-denominated loans totaled 718.8 billion yuan ($103.6 billion) in April. The number was up by 64.9 billion yuan year-on-year but was down from 3.89 trillion yuan in March, indicating that the recovery in lending demand may not yet be solid, experts said.

Citing that fiscal transfers to low-income households will be effective in boosting demand, Peng said such measures will help households better deal with their debt burden that has intensified due to COVID-19 and thus boost consumption.

On the monetary front, market sources and news reports said on Thursday that commercial banks are set to reduce interest rates for certain types of corporate deposits this month, following some small and medium-sized banks' cuts to their deposit rates earlier this year.

Sonali Jain-Chandra, IMF mission chief for China, said the recent cuts in deposit rates are in line with her suggestion that China should launch additional monetary easing as inflation remains low while growth momentum needs to be consolidated.