The International Monetary Fund called on China to significantly expand financial stimulus measures, warning that the second largest economy in the world still faces the risk of sliding into price deflation, in light of weak domestic demand and the continuing real estate sector crisis, despite the strong performance of exports.
Krishna Srinivasan, Director of the Asia and Pacific Department at the International Monetary Fund, said during a press conference on Thursday that the financial measures taken by Beijing to support the economy represent a positive step, but they are still limited in size and scope, and are not sufficient to address the imbalances that hinder the recovery of domestic demand.
He added: “We welcome the financial support provided by China to the economy, but we see it as very limited in size and scope.”
This call comes in conjunction with new Fund forecasts indicating that the growth of the Chinese economy will slow to 4.5 percent in 2026, compared to growth of 5 percent in 2025, with growth declining further to 4 percent in 2027.
These expectations reflect the continuing structural challenges facing the Chinese economy, most notably weak household spending, declining confidence in the real estate market, and heavy reliance on external demand to support economic activity.
Srinivasan explained that the bulk of Chinese growth is still driven by external demand, noting that the economic rebalancing towards domestic consumption, which the Fund has been calling for for years, has not been achieved to the desired extent.
He said that China needs a much greater amount of fiscal stimulus in the near term, until the economy can regain price momentum and move away from the risks of deflation.
Price deflation refers to a decline in the general level of prices, a situation that may appear positive for consumers at first, but carries economic risks if it continues for a long period, as it may prompt families to postpone their purchases in anticipation of further decline in prices.
Weak prices also put pressure on companies' revenues and profits, and increase the real burden of debt, which may limit investment and employment, and weaken economic activity.
China faces these risks at a time when the export and technology sectors are showing a remarkable ability to grow, while domestic consumer demand remains less strong, widening the gap between the performance of sectors directed abroad and those dependent on the internal market.
The IMF believes that addressing this imbalance requires a more effective financial policy in supporting families and improving their confidence in the economic prospects, rather than relying primarily on investment and production directed to export.
This recommendation gains special importance with the continued strength of Chinese exports, which have contributed to supporting growth, but at the same time it raises increasing trade tensions with a number of economic partners.
Excessive reliance on foreign markets makes the economy more vulnerable to changes in global demand, customs duties, and protectionist measures, which reinforces the need to stimulate domestic consumption as a more sustainable source of growth.
In this context, Srinivasan renewed his warnings about the continuation of the Chinese real estate crisis, saying that it “has continued for a longer period than it should.”
He stressed the need to take measures to rehabilitate the real estate sector, in addition to enhancing family confidence and expanding social protection networks.
The real estate sector represents one of the most prominent sources of pressure on the Chinese economy, given its connection to household wealth, local finance, and demand for building materials and construction-related services.
The continued weakness of the sector may weaken consumer confidence, especially among families whose savings are tied to real estate assets.
Improving real estate market conditions would help restore confidence, but it requires addressing existing problems in a way that ensures the stability of the sector without reproducing previous imbalances.
Expanding social safety nets can also encourage families to increase their spending, by reducing the need to maintain large savings to meet the costs of treatment, retirement, and other future expenses.
Here the importance of directing financial stimulus towards supporting the purchasing power of families and improving social services is highlighted, which helps raise internal demand and reduce dependence on exports.
On the other hand, the Chinese authorities face a challenge in determining the appropriate size of stimulus, and its financing mechanisms, to ensure support for the economy without increasing pressure on local budgets, or directing resources to projects with limited returns.
The IMF call indicates that gradual measures may not be sufficient if deflationary pressures and weak confidence continue, especially with the expectation of a slowdown in growth over the next year.
From an investment perspective, the direction of Chinese fiscal policy will be an important factor in determining the prospects for the retail, services, and real estate sectors, as well as industrial companies that depend on domestic demand.
Beijing's success in stimulating consumption may reduce companies' dependence on foreign markets and gradually reduce the trade imbalances that have become a major focus in China's relations with its partners.
In conclusion, the International Monetary Fund places before China a clear economic priority, which is to move from export-driven growth to a model more dependent on domestic consumption.
While export sectors continue to support economic activity, the sustainability of the recovery will increasingly depend on addressing the real estate crisis, strengthening household confidence, and expanding financial support.
The steps that Beijing takes during the coming period will be decisive in determining its ability to contain the risks of price deflation, achieve a greater balance between domestic and external demand, and maintain stable growth during the years 2026 and 2027.
The number of Americans who filed new applications for unemployment benefits increased slightly last week, as the pace of layoffs continues to decline, which enhances the stability of the labor market.
The US Department of Labor said on Thursday that initial applications for government unemployment benefits increased by 1,000 applications, reaching 199,000 applications, after seasonal adjustment, during the week ending October 10. Economists polled by Reuters had expected 200,000 applications to be recorded during the same week.
This is the fifth week in a row in which claims remain below the 200,000 level, consistent with economists’ description of the labor market as witnessing “a decline in both employment and layoff rates.”
In its report issued on Wednesday, the Federal Reserve described labor market conditions as “little to no change” during the period from late August to early October, noting that labor supply was “generally sufficient to meet demand.”
But the report also pointed to the continued shortage of “skilled specialized, technical, and professional labor.” He added that five regions reported that some companies had reduced the number of their employees, either by refraining from compensating employees who leave, or by postponing recruitment, or by expecting to provide fewer jobs as a result of increased productivity thanks to investment in artificial intelligence.
The labor market derives its stability from low layoff rates, while hiring is still proceeding at a slow pace, amid what economists describe as “headwinds” facing employers, resulting from customs duties and high prices related to the American-Israeli conflict with Iran. On Wednesday, the government announced the acceleration of consumer inflation in September.
The claims report also showed that the number of people who continued to receive unemployment benefits after the first week of eligibility, an indicator used to estimate the pace of hiring, fell by four thousand people, to 1.710 million people, after seasonal adjustment, during the week ending October 3.
However, continuing aid applications do not include recent university graduates and others who do not meet the requirements for benefits, due to their short professional record or lack of previous work experience.
Also, some long-term unemployed people may have exhausted their eligibility for benefits, which in most states is limited to 26 weeks, contributing to the number of continuing claims remaining at low levels.
The average duration of unemployment reached 11.5 weeks in September, a level approaching its highest levels in four and a half years, while the unemployment rate recorded 4.2 percent during the same month.
Official data, issued on Thursday, showed that the British economy recorded a better-than-expected performance last August, driven by a new rise in computer programming activity. This provides additional evidence of the role of artificial intelligence in enhancing economic growth. These data give Finance Minister John Healey a positive boost ahead of his announcement of the budget.
The British National Statistics Office reported that the gross domestic product grew by 0.1 percent last August, exceeding economists’ expectations in a Reuters poll, which suggested a contraction of 0.1 percent.
The annual growth rate rose to 2.1 percent, the highest level since October 2022, when the economy was still recovering from the repercussions of the “Covid-19” pandemic. Excluding that period, this is the fastest growth rate since December 2019.
In an additional indication of the role of the artificial intelligence boom in supporting the British economy, the Office for National Statistics stated that the computer programming sector was the largest contributor to growth during the three months ending last August.
“Sector analysis indicates that artificial intelligence is behind a large part of this rise,” said Andrew Wishart, chief economist at Berenberg Bank, adding that consumer spending was also stronger than expected, despite the rise in inflation rates.
The British economy is showing widespread strength
The Office for National Statistics also indicated that growth over the past year included a wide range of the services sector, which constitutes the basic pillar of the British economy.
Thomas Bowe, chief economist at RSM UK, a tax and auditing firm, said: “We have to stop talking about mere ‘resilience’ and start talking about good and acceptable growth this year, even if economic activity stagnates in the fourth quarter.”
However, Haley faces a major challenge as long-term government borrowing costs recently reached their highest levels since the 1990s. It must adhere to its financial rules without worrying investors, despite the sharp decline in government bond yields on Thursday.
This data may also affect policymakers at the Bank of England, as they consider raising interest rates next month, especially since economic growth in the third quarter appears likely to exceed the Central Bank’s expectations of 0.4 percent.
Bowe said that these indicators suggest that interest rates at their current levels do not restrict economic activity to the extent that the Bank of England had assumed.
During the first half of 2026, Britain and the United States shared the top spot as the fastest growing economies within the “Group of Seven countries.”
Healey welcomed these data, saying in a statement: “Despite the conflicts in the Middle East and Europe affecting people around the world, today’s figures (Thursday) provide further evidence of Britain’s ability to withstand these global shocks.”
A strong boost from the manufacturing and programming sectors
Last August alone, growth was driven by the manufacturing sector, which recorded a monthly increase of 1.2 percent, contradicting expectations that indicated a slight decline in production.
As for the services sector, it remained stable during the month, exceeding expectations that it would decline by 0.1 percent. The computer programming sector emerged again, recording a growth of 1.1 percent, bringing its production output since the beginning of the year to a level of more than 13 percent.
Jake Finney, chief economist at PwC, said: “Business investments, especially in technology devices, have been an important driver of Britain’s strong and unexpected economic performance this year.”
He added: “The United Kingdom is still lagging behind the United States in terms of the size of these investments and the extent of their contribution to enhancing growth, but it is making progress and remains superior to many of its European counterparts.”
According to national accounts data, output in Britain's broader information and communications sector rose 12 percent this year, compared to growth of two and 0.2 in Germany and France, respectively.
The International Monetary Fund said earlier this week that rising energy prices and increasing long-term interest rates may put pressure on British economic growth next year, despite raising its growth forecast for the current year to 1.3 percent, compared to a previous estimate of 1.0 percent.
In the currency market, the pound sterling headed on Thursday towards achieving its largest daily gain against the dollar since mid-August, supported by the weakness of the US currency and unexpected growth data in the British economy.
The British pound rose 0.5 percent to $1.3253, benefiting from a 0.15 percent decline in the dollar. The US currency was under pressure due to the decline in US Treasury bond yields and the increase in anxiety in stock markets, in light of an atmosphere of “risk aversion,” while traders monitor macroeconomic developments and interest rate expectations.
The euro also benefited from the decline in the dollar, while the pound sterling stabilized against the single European currency at 84.60 pence per euro.
