The International Monetary Fund (IMF) has downgraded China’s 2024 economic growth forecast to 4.8% from its previous estimate of 5%, citing weakening consumer confidence and ongoing domestic property issues.

This revised projection, while aligned with China’s official target of “around 5%,” highlights the challenges facing the world’s second-largest economy despite recent stimulus efforts, SCMP reports.

The IMF warned that further declines in home prices could hurt consumer confidence and weaken household consumption, dampening domestic demand.

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U.S. Treasury Secretary Janet Yellen and IMF chief economist Pierre-Olivier Gourinchas told Reuters that China’s central bank and finance ministry had yet to announce policies that could significantly lift demand and drive economic growth.

Yellen emphasized the need to increase consumer spending in China as a share of GDP. Gourinchas echoed this sentiment.

Despite these concerns, the IMF predicted 4.5% growth for China in 2025. Many investment banks, including DBS Bank, have either maintained or raised their growth forecasts for China, citing the positive impact of the country’s recent stimulus measures.

The US-listed Chinese electric vehicle stocks NIO Inc ( NIO ) , Li Auto Inc ( LI ) , XPeng Inc ( XPEV ) , ZEEKR Intelligent Technology Holding ( ZK ) are trading higher Wednesday in anticipation of more Chinese stimulus.

Meanwhile, hyperscalars like Alibaba Group Holding ( BABA ) and Baidu ( BIDU ), Inc’s stock price looked restrained in the premarket session.

Gourinchas also highlighted that low consumer spending in China, exacerbated by a property market crisis that damaged household wealth, had naturally shifted production towards export markets.

While Yellen agreed that China’s savings must be reduced and consumer spending increased, she warned that large electric vehicles and semiconductors subsidies threatened U.S. manufacturing jobs.

U.S. and Chinese officials are set to meet in Washington to discuss these issues and seek common ground on Chinese industrial capacity.

China’s property market struggles began with new regulations in 2020, followed by developer defaults and falling home prices. Given China’s significant role in global trade, this slowdown risks negatively impacting advanced and emerging market economies.

The IMF also noted that while China’s stimulus measures, including rate cuts, debt relief, and government bond issuance, could provide some upside to growth, they might place additional strain on public finances.

Price Actions: NIO stock is up 1.34% at $5.30 premarket at last check Wednesday. XPEV stock is up 2.54%, LI up by 5.86% and ZK up by 2.02%.

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