Economics
IMF warns on China’s property market worsening
Chinese flags for sale on Nanjing East Road in Shanghai, China, on Wednesday, Oct. 2, 2024.
Qilai Shen | Bloomberg | Getty Images
The International Monetary Fund (IMF) warned of a possible worsening of the state of China’s property market as it trimmed its growth expectations for the world’s second-largest economy.
In a report published Tuesday, the IMF trimmed its forecast for growth in China for this year to 4.8%, 0.2 percentage points lower than in its July projection. In 2025, growth is expected to come in at 4.5%, according to the IMF.
The Washington, D.C.-based organization also highlighted that China’s property sector contracting by more than expected is one of many downside risks for the global economic outlook.
“Conditions for the real estate market could worsen, with further price corrections taking place amid a contraction in sales and investment,” the report said.
Historical property crises in other countries like Japan (in the 1990s) and the U.S. (in 2008) show that unless the crisis in China is addressed, prices could correct further, the IMF’s World Economic Outlook noted. This in turn could send consumer confidence lower and reduce household consumption and domestic demand, the agency explained.
China has announced the introduction of various measures aimed at boosting its fading economic growth in recent months. In September, the People’s Bank of China announced a slate of support such as reducing the amount of cash banks are required to have on hand.
Just a few days later, China’s top leaders said they were aiming to put a halt to the slump in the property sector, saying its decline needed to be stopped and a recovery needed to be encouraged. Major cities including Guangzhou and Shanghai also unveiled measures aiming to boost homebuyer sentiment.
China’s Minister of Finance then earlier this month hinted that the country had space to increase its debt and its deficit. Lan Fo’an signaled that more stimulus was on its way and policy changes around debt and the deficit could come soon. The Chinese housing ministry meanwhile announced that it was expanding its “whitelist” of real estate projects and speeding up bank lending for those unfinished developments.
Some measures from the Chinese authorities have already been included in the IMF’s latest projections, Pierre-Olivier Gourinchas, chief economist at the IMF told CNBC’S Karen Tso on Tuesday.
“They are certainly going in the right direction, not enough to move the needle from the 4.8% we’re projecting for this year and 4.5% for next year,” he said, noting that the more recent measures were still being assessed and have not been incorporated into the agency’s projections so far.
“They [the more recent support measures] could provide some upside risk in terms of output, but this is the context in which the third quarter of Chinese economic activity has disappointed on the downside, so we have this tension between, on the one hand, the economy is not doing as well, and then there is a need for support. Is there going to be enough support? We don’t know yet,” Gourinchas said.
China last week reported third-quarter gross domestic product growth of 4.6%, slightly higher than the 4.5% that economists polled by Reuters had been expecting.
In its report, the IMF also noted potential risks to the economic measures.
“Government stimulus to counter weakness in domestic demand would place further strain on public finances. Subsidies in certain sectors, if targeted to boost exports, could exacerbate trade tensions with China’s trading partners,” the agency said.
Hiring decreased just slightly in May even as consumers and companies braced against tariffs and a potentially slowing economy, the Bureau of Labor Statistics reported Friday.
Nonfarm payrolls rose 139,000 for the month, above the muted Dow Jones estimate for 125,000 and a bit below the downwardly revised 147,000 that the U.S. economy added in April.
The unemployment rate held steady at 4.2%. A more encompassing measure that includes discouraged workers and the underemployed also was unchanged, holding at 7.8%.
Worker pay grew more than expected, with average hourly earnings up 0.4% during the month and 3.9% from a year ago, compared with respective forecasts for 0.3% and 3.7%.
“Stronger than expected jobs growth and stable unemployment underlines the resilience of the US labor market in the face of recent shocks,” said Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management.
Nearly half the job growth came from health care, which added 62,000, even higher than its average gain of 44,000 over the past year. Leisure and hospitality contributed 48,000 while social assistance added 16,000.
On the downside, government lost 22,000 jobs as efforts to cull the federal workforce by President Donald Trump and the Elon Musk-led Department of Government Efficiency began to show an impact.
Stock market futures jumped higher after the release as did Treasury yields.
Though the May numbers were better than expected, there were some underlying trouble spots.
The April count was revised lower by 30,000, while March’s total came down by 65,000 to 120,000.
There also were disparities between the establishment survey, which is used to generate the headline payrolls gain, and the household survey, which is used for the unemployment rate. The latter count, generally more volatile than the establishment survey, showed a decrease of 696,000 workers. Full-time workers declined by 623,000, while part-timers rose by 33,000.
“The May jobs report still has everyone waiting for the other shoe to drop,” said Daniel Zhao, lead economist at job rating site Glassdoor. “This report shows the job market standing tall, but as economic headwinds stack up cumulatively, it’s only a matter of time before the job market starts straining against those headwinds.”
The report comes against a teetering economic background, complicated by Trump’s tariffs and an ever-changing variable of how far he will go to try to level the global playing field for American goods.
Most indicators show that the economy is still a good distance from recession. But sentiment surveys indicate high degrees of anxiety from both consumers and business leaders as they brace for the ultimate impact of how much tariffs will slow business activity and increase inflation.
For their part, Federal Reserve officials are viewing the current landscape with caution.
The central bank holds its next policy meeting in less than two weeks, with markets largely expecting the Fed to stay on hold regarding interest rates. In recent speeches, policymakers have indicated greater concern with the potential for tariff-induced inflation.
“With the Fed laser-focused on managing the risks to the inflation side of its mandate, today’s stronger than expected jobs report will do little to alter its patient approach,” said Rosner, the Goldman Sachs strategist.
Friday also marks the final day before Fed officials head into their quiet period before the meeting, when they do not issue policy remarks.
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