IMF official sees signs of 'confidence and consumption coming back' in China

WASHINGTON - An International Monetary Fund (IMF) official has said that recent data indicates confidence and consumption are coming back in China after the country adjusted its COVID-19 pandemic response, noting that he expects "revenge consumption" to play out in the country.

"Mobility in the second half of December, the first three weeks in January, has increased a bit more than we expected. And I think increased mobility is one of the preconditions for more consumption, but also one of the signs of more confidence," Thomas Helbling, deputy director of the IMF's Asia and Pacific Department, told Xinhua in a recent virtual interview.

Three sources of economic resilience

"There will be a gradual return of confidence after disruptions," said Helbling. "This is not overnight, but the process of confidence returning and people going back to their normal lives, consuming, working, etc is on the way."

In an update to its World Economic Outlook report released late January, the IMF projected China's economy would grow by 5.2 percent in 2023, 0.8 percentage points higher than the October 2022 forecast, driven by a rebound in private consumption.

Helbling said it was only natural that with the easing of the COVID-19 restrictions and the full reopening of the economy, consumption would benefit the most.

"Think of travel and tourism. So there has been more tourism for the Lunar New Year relative to what we have seen over the past two years," he said.

The IMF official highlighted three primary sources when asked about China's economic resilience. "One, at the household level, households have high levels of savings. So they have a buffer; they have opportunities to draw and get over difficult times," Helbling said.

"And the government has space to adjust policies and respond with policies should the economy turn out to be weaker than expected," he said.

"And then thirdly, I should also mention, we see that the economy is operating below its potential, so there is an output gap, but it's relatively small," allowing the economy to continue to operate, he added.

China's rebound "will be felt"

According to the latest update to the World Economic Outlook report, global growth is projected to fall from an estimated 3.4 percent in 2022 to 2.9 percent in 2023, then rise to 3.1 percent in 2024. The average growth rate between 2000 and 2019 has been 3.8 percent.

Against such a backdrop, China's "stronger rebound will be felt," Helbling said, noting that China's higher growth in the next two years will "make a big difference" in services, tourism and aviation, among other sectors of the global economy.

The IMF official said China's rebound and strong recovery would be a plus for Asia, including a positive spillover for some commodity exporters, as the IMF expects some increase in energy demand.

Secondly, countries in Asia will benefit from Chinese tourism. He said that tourism in the region, given that restrictions in and outside of China have largely ended, would result in a meaningful rebound in economies where the hospitality sector is significant, including Thailand and the Philippines.

"And finally, countries that produce or are more involved" in providing consumer goods stand to benefit from China's rebound, he added.

For China itself, the rebound could be helpful in the long run. The IMF official noted that an earlier rebound during the early stages of the pandemic was investment-driven. The current rebound is based on more robust consumption, resulting in some "rebalancing" in line with China's long-term economic goals.

Avoid premature tightening

Amid an output gap in 2023 and downside risks to the economic outlook, it will be important for Chinese policymakers to avoid prematurely tightening macroeconomic policies, according to a recent IMF staff report following the annual Article IV review of the Chinese economy.

In particular, the report noted that a neutral fiscal stance with spending shifted toward households would support the recovery, and additional monetary policy accommodation would help secure it.

Looking ahead, Helbling said key structural reforms should be reaccelerated to lift potential growth, which is experiencing headwinds from demographic trends and slowing productivity growth.

"China has made enormous strides in improving its per capita income and has had very rapid, exceptionally rapid economic development," said the IMF official, noting that China has "sailed over the average" of emerging market and developing economies.

"As China moves along and passes by the middle-income level, it will be important that the sources of growth move from extensive growth based on investment, labor force growth and move more towards innovation and productivity," Helbling said.

"Supporting innovation will be very important, and that ties into ... increasing" growth potential in the medium term," Helbling added.