China is the Growth Story

The International Monetary Fund raised its 2021 growth forecast for China to 8.4 percent on Tuesday, as it projected a stronger global rebound from the pandemic but warned of “divergences in the speed of recovery”.

The figure is 0.3 percentage points above the IMF’s January prediction and would mark the country’s strongest growth rate since 2011, after the world’s second largest economy became the only major one to expand last year.

China has enjoyed a strong rebound since strict lockdowns across the country brought activity to a near-halt in 2020 after Covid-19 first surfaced in the central city of Wuhan.

The IMF said “effective containment measures, a forceful public investment response, and central bank liquidity support have facilitated a strong recovery”.

China’s GDP grew 2.3 percent in 2020 — the slowest pace in more than four decades — and although leaders set a modest target of more than six percent this year, analysts widely expect a much higher number.

“China had already returned to pre-Covid GDP in 2020, whereas many others are not expected to do so until well into 2023,” said the IMF.

Its forecast for China is much higher than other major economies including the United States, Germany and France, although behind India.

The IMF expects growth to slow to 5.6 percent next year, a projection unchanged from January.

Despite the strong showing, it also warned geopolitical tensions between Washington and Beijing could weigh on recovery.

“Tensions between the United States and China remain elevated on numerous fronts, including international trade, intellectual property, and cybersecurity,” it said.

Meanwhile, it expects mild fiscal tightening for China and monetary policy to remain supportive this year.