(Yicai) July 9 -- The International Monetary Fund has raised its growth forecasts for China this year and next, after the world’s second-largest economy did better than expected in the first quarter.

China’s economy is now expected to grow 4.6 percent in 2026 and 4.1 percent in 2027, up from the 4.4 percent and 4 percent predicted in April, according to the IMF’s World Economic Outlook report released yesterday. The country’s gross domestic product expanded 5 percent last year.

The economy grew at a faster-than-expected 8.1 percent clip in the first three months of the year, based on the IMF’s seasonally adjusted estimates, with the expansion driven by front-loaded public infrastructure investment and a surge in exports and high-tech manufacturing, even as domestic consumption remained soft, the report said.

However, higher global oil prices, together with protracted uncertainty and structural headwinds, are expected to weigh on China’s economic activity this year, it added.

The negative effect of the Middle East conflict and the growth benefits generated by the adoption of artificial intelligence are pulling the global economy in opposite directions, the report noted. In this context, the Washington-based IMF lowered its world growth projection for this year to 3 percent from April’s 3.1 percent, while raising that for next year to 3.4 percent from 3.2 percent.

Economic performance is diverging because of differences in countries’ exposure to conflicts and their positions in the global technology value chain, the IMF said. Energy-exporting countries outside the conflict zone, for example, benefit from favorable trading conditions, while economies deeply integrated into the tech supply chain continue to do well even if they are energy importers.

Looking ahead, although risks have become more balanced compared with April, the global economy still faces multiple pressures. Re-escalation of the Middle East conflict may trigger a surge in energy prices, while worsening trade tensions could drive more economies to impose tariffs or non-tariff trade restrictions, damaging global output and driving up inflation.

The IMF also mentioned the risk of a bursting tech bubble. If the expectations for AI are not met, investment in technology could plunge and high stock valuations could tumble. Through the wealth effect, such a downturn would weigh on household consumption and, through cross-border investment channels, trigger a tightening of global financial conditions, the IMF noted.

Editors: Dou Shicong, Tom Litting