IMF Urges China to Shift Towards Consumption-Led Growth

The IMF reports China's economy grew by 5% in 2025 and is expected to grow by 4.5% in 2026. The fund highlights the need for China to pivot from export-led growth to consumption-driven growth to mitigate deflationary pressures, urging policy shifts in fiscal, monetary, and social dimensions.

China's economy showed an impressive 5% expansion in 2025, with projections indicating a 4.5% growth for 2026. This figure is 0.3 percentage points higher than earlier IMF forecasts from October, showcasing the resilience bolstered by strong exports and fiscal stimuli, according to the International Monetary Fund (IMF).

Despite these gains, the IMF warns that China's growth model faces increasing challenges, with subdued domestic demand partly due to a persistent property slump and a weak social safety net affecting consumer spending habits. The IMF cautions that the reliance on external demand is creating deflationary pressures, and continuous expansion of exports may not foster sustainable growth in the future. The fund emphasizes a pivotal shift towards a consumption-led growth model as the main policy priority.

The IMF recommends a comprehensive approach, proposing enhanced fiscal stimulus, further monetary easing, and greater exchange rate flexibility as measures to stimulate inflation to healthier levels and boost domestic demand, reducing export dependency. Additionally, the IMF suggests restructuring fiscal strategies by decreasing public investment in specific industries, thus improving productivity and freeing up resources for increased social expenditure and addressing the real estate downturn.

(With inputs from agencies.)