International Monetary Fund economists warned that China’s real estate sector downturn could erode growth prospects in the Asia Pacific region, which is already seeing signs of its recovery losing steam.
(Bloomberg) — International Monetary Fund economists warned that China’s real estate sector downturn could erode growth prospects in the Asia Pacific region, which is already seeing signs of its recovery losing steam.
“In the near term, the sharp adjustment in China’s heavily indebted property sector and the resulting slowdown in economic activity will likely spill over to the region, particularly to commodity exporters with close trade links to China,” IMF economists Yan Carrière-Swallow and Krishna Srinivasan wrote in a report published Friday.
However, China can avoid localized balance sheet distress from spreading with the right property policies such as helping restructure distressed developers and providing support for unfinished real estate projects, Srinivasan said during a press conference in Marrakech on Friday.
The region is also facing growing geopolitical headwinds as some nations pursue supply chain diversification and shift demand to domestic sources.
“In a downside scenario where “de-risking” and “re-shoring” strategies take hold, output could decline by up to 10 percent over five years in the Asian economies most closely linked to China’s economy,” they wrote.
The IMF earlier lowered its growth forecast for the region to 4.2% for next year, down 0.2 percentage points from an April projection. The estimate for 2023 remains at 4.6%, up from 3.9% last year.
“Our less-optimistic assessment is based on signs of slowing growth and investment in the third quarter, in part reflecting weaker external demand as the global economy slows, such as in Southeast Asia and Japan, and faltering real estate investment in China,” they said.
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China’s fragile economic recovery has been in focus as new data shows the country returning to the brink of deflation. Earlier this week, Bloomberg News reported the Chinese government is considering raising its budget deficit for the year as part of a plan to spend more on infrastructure — a form of stimulus to help the economy meet an official growth target of about 5%.
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The IMF economists struck a note of optimism, saying inflation is expected to return to central bank target ranges next year in most Asia Pacific countries, ahead of other regions where price gains are expected to be within target only in 2025.
(Updates with comments from press conference in third paragraph.)
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