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China needs fiscal and monetary support for a slowing economy and deeper reforms tackling imbalances in property markets, the IMF's executive board said Friday in an annual assessment.

“Macroeconomic policies should adjust to protect growth. Monetary policy as you have seen has already moved in the right direction with the policy rate reductions of recent days, but fiscal policy is still in consolidation mode and subtracting from growth. We recommend state fiscal policy take a neutral fiscal stance in 2022,” Helge Berger, the IMF Mission Chief for China, told reporters.

The IMF recently cut its 2022 global growth forecast led by a 0.8pp reduction for China to 4.8%, much weaker than the 2021 pace of 7.9%, and because of slower U.S. fiscal stimulus. The IMF has said China's slowdown comes from reduced policy support, weak consumer spending and slowing real estate investment following efforts to reduce leverage. The prospect of Federal Reserve rate hikes will have little effect on China because of its largely closed capital account, IMF Asia and Pacific deputy director Krishna Srinivasan told reporters.

"Significant slack in the economy is expected to remain in 2022 with core CPI inflation projected to stay subdued and below the target of about 3%," the IMF said in an Article IV report published Friday.

China is vulnerable to the further spread of weakness linked to troubled property markets, IMF officials said, and must also think about how to best calibrate Covid restrictions. The government has the tools to manage the real estate situation, Srinivasan said, such as ensuring the timely completion of pre-sold housing and restructuring of troubled operators. "Policy response so far has been somewhat piecemeal," he said.


MNI Ottawa Bureau | +1 613-314-9647 | greg.quinn@marketnews.com
MNI Ottawa Bureau | +1 613-314-9647 | greg.quinn@marketnews.com

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