The International Monetary Fund (IMF) has issued a warning about the deteriorating property market in China, which has led to a reduction in the country's growth outlook.

• The Washington, D.C.-based organization pointed out that China's property sector contracting more than expected is one of the many downside risks for the global economic outlook.
• Last week, China reported a slight increase in third-quarter gross domestic product growth of 4.6%, exceeding the 4.5% forecasted by economists polled by Reuters.
• The IMF reduced its forecast for China's growth in 2021 by 0.2 percentage points, bringing it to 4.8%, as stated in a report published on Tuesday.

The IMF cautioned about a potential deterioration of China's real estate market while revising its global economic growth forecast for the country.

The IMF has revised its forecast for China's growth in 2021 to 4.8%, which is 0.2 percentage points lower than its previous projection. For 2025, the IMF anticipates growth of 4.5%.

The Washington, D.C.-based organization pointed out that China's property sector contracting more than expected is one of the many downside risks for the global economic outlook.

The real estate market could face worse conditions, including price corrections and a decrease in sales and investment, according to the report.

The IMF's World Economic Outlook warned that if the crisis in China is not resolved, it could lead to a further correction in property prices, which could decrease consumer confidence and reduce household consumption and domestic demand, as seen in other countries like Japan in the 1990s and the U.S. in 2008.

The People's Bank of China announced in September measures to support the Chinese economy, including reducing the amount of cash banks are required to hold.

In an effort to halt the decline of the property sector, China's top leaders announced measures to encourage a recovery, while major cities such as Guangzhou and Shanghai also unveiled similar initiatives to boost homebuyer sentiment.

Earlier this month, China's Minister of Finance hinted that the country had room to increase its debt and deficit. Lan Fo'an signaled that more stimulus was on its way and policy changes around debt and the deficit could come soon. Meanwhile, the Chinese housing ministry announced that it was expanding its "whitelist" of real estate projects and speeding up bank lending for those unfinished developments.

The IMF's latest projections have already incorporated some measures from Chinese authorities, as stated by Pierre-Olivier Gourinchas, the IMF's chief economist, in a conversation with Karen Tso on Tuesday.

He stated that although they are heading in the right direction, their progress is not enough to change the projected 4.8% and 4.5% growth rates for this and next year, respectively, as the more recent measures are still being evaluated and not yet included in the agency's projections.

Gourinchas stated that the recent support measures could potentially have a positive impact on output, but given the disappointing third quarter of Chinese economic activity, there is tension between the economy's poor performance and the need for support. The question remains: will there be enough support to address this tension? The answer is still uncertain.

Last week, China reported a slight increase in third-quarter gross domestic product growth of 4.6%, exceeding the 4.5% forecasted by economists polled by Reuters.

The IMF's report highlighted potential risks to the economic measures.

The government's stimulus to boost domestic demand could strain public finances further, while subsidies aimed at increasing exports could worsen trade tensions with China's trading partners, according to the agency.