Though China is recovering fast ahead of most large economies, the recovery is unbalanced and facing significant downside risks, according to the International Monetary Fund (IMF), which recently projected an 8 per cent growth rate for the world's second largest economy in 2021. The main concern around the Chinese recovery is the lack of balance, IMF said.
The recovery is still relying mostly on public support. Private investment has strengthened recently, but consumption is lagging. Growth rates and consumption recently have been higher, but the level of consumption compared to its pre-crisis trend is still rather low, Hlge Berger, mission chief for China and assistant director at IMF’s Asia and Pacific department told reporters during a recent conference call on the publication of the 2020 China Article IV Staff Report.Though China is recovering fast ahead of most large economies, the recovery is unbalanced and facing significant downside risks, according to the International Monetary Fund (IMF), which recently projected an 8 per cent growth rate for the world's second largest economy in 2021. The main concern around the Chinese recovery is the lack of balance, IMF said.#
"China is recovering fast ahead of most large economies, but the recovery is still unbalanced and facing significant downside risks. We are seeing growth at around 2 per cent in 2020 and around 8 per cent in 2021. December numbers have been surprising on the upside, so there are some upside risks to that forecast," Berger was quoted as saying by global newswires.
On the other hand, he said that there are significant downside risks. Domestically, there is a pandemic risk that is still around. Also, the external environment has generally become a little bit more difficult for China and its economic relations with other countries.
"This is a large reason for the fact that we think that there's still an output gap this year of 1.8 per cent. That's the difference between what the economy potentially can have in terms of GDP and what we are actually expecting in terms of demand. So that's where this lack of balance comes in, and this has important implications for the way macro policies should be conducted," Berger said.
In the short term, he said, the IMF does not withdraw macroeconomic policy support prematurely in China. And this is the advice that other countries are getting from the IMF, so this is a bit of a global concern, but it applies to China as well.
"The second implication of our analysis of the outlook and the risks around it is that we need to make sure that we adjust the composition of macroeconomic support away from investment towards household support. This will directly help consumption. This has implications, of course, for our policies to strengthen the social safety net," Berger added.
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