Strong consumption, exports spur IMF's brighter outlook for nation

The International Monetary Fund has raised its projections for China's economic growth this year to 5 percent and next year to 4.5 percent, while modestly lowering expectations for the United States and Japan.

In its July 2024 World Economic Outlook Update, which was released on Tuesday, the IMF also forecast tepid global growth at 3.2 percent, unchanged from its previous projection in April and down a tick from 3.3 percent in 2023.

Pierre-Olivier Gourinchas, the IMF's chief economist, said at a news briefing that the projections for China's growth in 2024 and 2025 have been revised upward respectively from the 4.6 percent and 4.1 percent forecast in its April outlook.

"And this revision was in part based on stronger consumption numbers in the first quarter of the year, stronger exports also," he said.

Jean-Marc Natal, deputy chief of the World Economic Studies Division at IMF's Research Department, said at the briefing that one of the reasons for the upward revision "is that we expect that the new program, which is called trading and equipment upgrade, put in place by the Chinese authority, will help boost consumption and investment and growth at the same time".

Natal added that the IMF has been recommending a shift toward consumption in the past few years and "this is one step in the right direction".

China's GDP grew 5 percent year-on-year in the first half of 2024 to 61.68 trillion yuan ($8.5 trillion), showcasing a steady rebound, data from the National Bureau of Statistics showed on Monday.

Lin Jian, a spokesman for the Foreign Ministry, said that judging by this scorecard, the Chinese economy did a "pretty good job" in the first half of the year.

"Despite the rising instability and uncertainty in the global economy, China's economy withstood the pressure and played an important role as an anchor and source of strength," Lin said.

While the IMF said it expects the global economy to grow 3.2 percent this year, unchanged from its previous forecast in April, it projected growth of 3.3 percent in 2025, 0.1 percentage point higher compared with its April outlook for next year.

"Global growth remains steady," said Gourinchas, estimating that China and India would account for nearly half of such growth this year.

The IMF revised its forecast for India's growth this year to 7 percent, up from 6.8 percent it projected in April, mainly based on a better outlook for private consumption, especially in rural areas.

Overall, the IMF's July outlook raised growth projections for emerging markets and developing economies to 4.3 percent for 2024.

Citing a rise in Europe's services businesses, the IMF raised its 2024 growth forecast for the 20 countries that share the euro currency by a tenth of a percentage point from its April forecast to 0.9 percent, leaving the eurozone's 2025 forecast unchanged at 1.5 percent.

"Global activity and world trade firmed up at the turn of the year, with trade spurred by strong exports from Asia," the report stated.

The IMF said a "slower-than-expected start to the year" in the US led it to downgrade the forecast for the country's growth in 2024 to 2.6 percent from the 2.7 percent projected in April. Likewise, the IMF lowered its outlook for Japan's growth this year to 0.7 percent from 0.9 percent forecast in April.

Warning that government balance sheets are weak coming out of the pandemic and vulnerable to new shocks, Gourinchas called the US a "concerning" example in a blog on the July outlook.

"The United States, while at full employment, maintains a fiscal stance that pushes its debt-to-GDP ratio steadily higher, increasingly relying on short-term funding with risks to both the domestic and global economy," he said.

The IMF report stated that inflation risks have increased, with prices of services holding up disinflation, which increases the prospect of interest rates staying elevated longer "in the context of escalating trade tensions and increased policy uncertainty".

"We see an explosion in the number of trade-restrictive measures," Gourinchas said, noting that the measures include export restrictions and industrial policies, and both may lead to retaliation. "One concern we have is that going forward, this will weigh down on global activity," he said.

The IMF report further said that a resurgence of tariffs could lead to retaliation and a "costly race to the bottom".

"So, let's remember that when we look at the assessment of, for instance, the previous rounds of tariffs that have been imposed by countries, very often the cost assessment finds that it's the country that imposes the tariffs that bear the cost of these tariffs," he said. "And so, it hurts the domestic economy, and it also inflicts spillovers to other countries as well."

yifanxu@chinadailyusa.com