People’s Republic of China: Selected Issues

International Monetary Fund

No 2024/276, IMF Staff Country Reports from International Monetary Fund

Abstract: This Selected Issues paper assesses the downside risks to inflation around the baseline in China. Recent economic shocks in China, including the ongoing property sector adjustment, have resulted in disinflationary pressures and low inflation. A deflation vulnerability index (DVI) has been developed, which combines data from many factors that may contribute to deflationary pressures. This paper refines the list of deflation risk indicators to better reflect China’ deflation pressures. Based on the DVI, China is currently experiencing its longest recorded period of downward pressure on inflation. The inflation-at-risk analysis suggests that output gaps and inflation expectations are the key components of DVI affecting the tail risk of core deflation in China. The probability of deflation in China is currently estimated to be around 7 percent in the baseline but could be as large as 27 (54) percent 9 months after a one (two) standard deviation shock to DVI.

Keywords: service sector productivity; B. deflation vulnerability index; outward FDI; inflation expectation; emissions trading system; Foreign direct investment; Services sector; Total factor productivity; Inflation; Global (search for similar items in EconPapers)
Pages: 64
Date: 2024-08-30
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