IMF cuts China’s GDP growth forecast to 4.4% as Iran war pressures global economy

The International Monetary Fund (IMF) has lowered its global economic growth forecast, including for China, citing shocks from the US-Israeli war in Iran.In its flagship World Economic Outlook published on Tuesday, the IMF projected worldwide gross domestic product growth at 3.1 per cent this year, down 0.2 percentage points from its January estimate.China – the world’s second-largest economy – is now expected to expand by 4.4 per cent this year. That would miss the IMF’s January estimate by 0.1 percentage points as the country grapples with a slowing domestic economy and the fallout from the Iran war. Beijing’s official growth target is set at 4.5 to 5 per cent.Chinese growth would be constrained by weak domestic activity – especially in the housing sector – which lags behind exports, according to the Washington-based fund.“Economies around the world face repercussions through the direct impact of higher commodity prices, indirect second-order effects on inflation expectations – which tend to be especially sensitive to energy and food prices – and amplification effects coming from risk-off sentiment in financial markets,” the outlook said.Even so, the IMF’s 4.4 per cent forecast for China was still higher than October’s projection, reflecting lower US tariff rates on Chinese imports and Beijing’s stimulus measures. Those drivers, it said, would “offset the negative impact of the shock induced by the Middle East conflict”.US President Donald Trump’s steep duties on China, imposed in early 2025, fell to an effective rate of about 15 per cent by the end of the year.Inflation in China is also projected to pick up from low levels, the IMF said, while a Monday research note by Goldman Sachs said “purchases may be accelerated” on a “shift” in inflation expectations tied to energy supplies.Analysts expect China to weather pressure on fuel supplies from the Iran war, but also warn of spillover effects from harder-hit trading partners.The IMF now expects the United States’ economy to grow by 2.3 per cent this year, down 0.1 percentage point compared with January’s projection. It forecast the euro zone economy to expand by 1.1 per cent, 0.2 percentage points lower than the estimate three months ago.The fund projects China’s growth rate to slow to 4 per cent in 2027 “as structural headwinds – including those from a grinding slowdown in the housing sector, a declining labour force, decreasing returns on investment and slower productivity growth – assert themselves”. The housing downturn is now in its fifth year.Further ReadingChinese policymakers are trying to shift the economy towards a consumption-driven growth model as exports become a less reliable engine of growth. Export growth weakened in March after a strong January and February.