China's economy is losing momentum, while Russia's recovery is accelerating, IMF says

• China's economy is losing momentum, after an initial post-COVID bounce, the IMF said.
• That's due to continued weakness in the real estate sector and softness in foreign demand.

China's post-COVID economic rebound is losing momentum, while Russia's prospects for growth look brighter, according to the International Monetary Fund's newest report.

The lender's growth estimate for China remained unchanged at 5.2% for this year, but key headwinds are hitting top drivers of the economy.

"Following a reopening boost, China's recovery is losing steam," the IMF said.

To be sure, China saw a rebound in manufacturing and services consumption early this year, after zero-COVID policies ended late last year.

But real-estate sector weakness has pressed down on investment in the country, while foreign demand is lagging, and youth unemployment is rising, the IMF said.

"High-frequency data through June confirm a softening in momentum into the second quarter of 2023," the report added.

Weak foreign demand has hit Chinese exports, which plummeted 12.4% in June from a year prior. Meanwhile, domestic demand has also lagged, putting China on the cusp of deflation.

Faced with this, China's leadership is now grappling with how to spur its economy back to life, having already cut interest rates.

"Stronger policy support in China than currently envisaged — particularly through means-tested transfers to households — could further sustain recovery and generate positive global spillovers," the IMF wrote. "Such developments, however, would increase inflation pressure and necessitate a tighter monetary policy stance."

By contrast, the IMF held more positive outlooks on Russia's economy, boosting its forecast for 2023 GDP growth to 1.5% from a prior view of 0.7%.

That follows an estimated 2.1% contraction in 2022, when Western sanctions over Russia's war on Ukraine largely shut out Moscow from the global financial system and cut off top energy exports.

The IMF pointed to strength in the first half of this year, citing retail trade, construction, and industrial production, which were boosted by fiscal stimulus.

However, its relatively upbeat forecasts for Russia have drawn criticism for relying too heavily on the Kremlin's data.

In fact, the IMF's estimates are even higher than those of Moscow, which last provided a 1.2% growth outlook.