China is facing renewed pressure to strengthen its domestic economy as weakening internal demand, persistent property-sector difficulties and mounting deflation risks complicate its growth outlook. The International Monetary Fund has called for a substantially larger fiscal response, arguing that the support introduced so far remains limited in both scale and scope.

The assessment, delivered by Krishna Srinivasan, director of the IMF's Asia and Pacific Department, at a press conference during the IMF and World Bank annual meetings in Bangkok on October 15, places the balance between exports and domestic consumption at the center of China's economic challenge.

The IMF projects that China's economy will expand by 4.5% in 2026, down from 5.0% in 2025, before slowing further to 4.0% in 2027. Weak domestic demand is a central factor behind that outlook. Srinivasan said much of China's recent growth has been driven by external demand, indicating that the economic rebalancing long sought by policymakers has yet to take hold.

Fiscal policy becomes central to the recovery outlook

The IMF's recommendation points to a gap between the scale of China's economic pressures and the reach of the measures implemented to address them. A larger fiscal stimulus could help support household spending, strengthen confidence and encourage businesses to respond to demand within the domestic market.

The effectiveness of additional spending, however, would depend on its composition and delivery. Measures that directly improve household purchasing power and reduce uncertainty about future expenses could have a different impact from support concentrated on investment or production. The IMF's call for stronger household confidence and expanded social safety nets suggests that the challenge extends beyond the volume of public spending to how effectively it reaches consumers.

This distinction matters for businesses operating in China. When households remain cautious, companies can face difficulty increasing sales even when production capacity is available. Weak consumption can also intensify competition for customers, constrain pricing power and discourage investment in sectors dependent on discretionary spending.

A more forceful fiscal response could help ease these pressures, but its results would depend on whether support translates into sustained domestic demand rather than a temporary improvement in activity.

Property crisis remains a major obstacle

China's prolonged property crisis is another significant constraint on economic recovery. Srinivasan said the downturn had continued for too long and reiterated the IMF's position that policies should help rehabilitate the sector.

Real estate is important not only as a source of construction activity and employment but also because housing conditions influence household confidence and spending decisions. Continued uncertainty in the property market can make consumers more cautious and weaken demand across businesses connected to housing, furnishings, building materials and related services.

The IMF has therefore linked property-sector rehabilitation with measures to restore household confidence and strengthen social protection. Addressing the problem requires more than stimulating construction: confidence must also improve, and households need greater certainty about their financial position and future expenses.

For policymakers, the difficulty lies in supporting economic activity while addressing the underlying weaknesses that have prolonged the downturn. Measures that fail to restore confidence may have a limited effect on consumption, while support directed only toward production risks leaving the demand problem unresolved.

Implications for companies and global markets

China's growth trajectory matters beyond its borders because of the country's role in global manufacturing, trade and commodity demand. A sustained slowdown in domestic spending could affect companies selling into the Chinese market, as well as suppliers and economies connected to Chinese industrial activity.

The IMF's projections also highlight the importance of distinguishing between growth supported by exports and growth driven by a broader recovery in domestic demand. External demand can sustain production and economic activity, but it does not necessarily resolve weak household consumption or restore confidence in property and other domestic assets.

For multinational companies, the outlook increases the importance of monitoring Chinese consumer demand, property-related exposure and the direction of government spending. Businesses reliant on robust domestic consumption may face a different set of risks from exporters benefiting from overseas demand.

Financial markets will also be watching whether Beijing adopts additional measures and how those policies are designed. The size of a stimulus package alone would not establish its effectiveness; its impact would depend on implementation, the distribution of support and the response of households and businesses.

The next phase of China's economic rebalancing

The IMF's warning underscores a broader policy question: whether China can reduce its dependence on external demand by creating stronger and more durable sources of domestic growth.

The institution is calling for more substantial near-term fiscal support until price pressures recover, alongside action to address the property crisis and improve household confidence. Together, these priorities indicate that the recovery challenge involves interconnected issues of spending, prices, financial security and business expectations.

The projected slowdown to 4.0% in 2027 makes the policy response particularly important. Additional fiscal measures could help stabilize activity, but a lasting improvement would require evidence that households are spending more confidently and that domestic demand is playing a larger role in economic growth.

China's next policy decisions will therefore be judged not only by the amount of money committed but also by whether the measures address the reasons consumers remain cautious. The outcome will influence the country's medium-term growth prospects and carry consequences for international trade, corporate planning and the wider global economy.