Washington, oct. 26, 2024 – China’s recent barrage of fiscal measures fall short of what’s needed to address deflationary risks plaguing the world’s second-largest economy, according to one senior International Monetary Fund official.
While recent policies, in principle, could boost the IMF’s forecast of 4.8% growth for China this year, the central government “has to spend” more to address the property crash and ease price pressures, according to Krishna Srinivasan, the organization’s Asia-Pacific department chief.
“We believe the measures announced will not be sufficient because domestic demand is very weak,” Srinivasan told Bloomberg News on Thursday in Washington.
“You have to make sure the pre-sold housing gets finished. And number two, the issue of viable versus non-viable developers has to be resolved.”
About 50 million households are expected to save 150 billion yuan in mortgage costs following that initiative, according to the central bank.
The real estate crisis has wiped an estimated $18 trillion from household wealth, pushing China into its longest deflationary streak since 1999, with data this month showing economic growth slowing to the weakest in six quarters.
When asked how long it will take for GDP deflator, a broad measure of prices in the economy, to turn positive, Srinivasan said “only time can tell.”
“It’s all of a question of how you address the underlying problem, which is domestic demand being very weak,” he said. (Bloomberg)
