China's property sector downturn could hurt Asia Pacific, warns IMF
The International Monetary Fund (IMF) has issued a warning that the slump in China's real estate sector could put a damper on growth prospects in the Asia Pacific region. IMF economists Yan Carrière-Swallow and Krishna Srinivasan explained that the sharp adjustment in China's heavily indebted property sector might spill over to the region, especially affecting commodity exporters with strong trade ties to China. The recovery in the Asia Pacific region is already displaying signs of slowing down.
Mitigating risks with proper policies
To prevent localized balance sheet distress from spreading, IMF economists recommend that China implement appropriate property policies. These policies could involve helping restructure struggling developers and offering support for unfinished real estate projects. Additionally, the Asia Pacific region is facing increasing geopolitical challenges as some countries pursue supply chain diversification and shift demand to domestic sources. This could lead to output declines of up to 10% over five years in economies closely linked to China.
IMF lowers growth forecast for Asia Pacific
The IMF has reduced its growth forecast for the Asia Pacific region to 4.2% for next year, a 0.2 percentage point drop from an April projection. The estimate for 2023 remains at 4.6%, up from 3.9% last year. This less optimistic outlook is based on signs of slowing growth and investment in the third quarter, reflecting weaker external demand from the global economy, such as in Southeast Asia and Japan, and faltering real estate investment in China.
Inflation expected to return to target ranges
Despite these challenges, IMF economists are still hopeful about inflation returning 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.
