The International Monetary Fund (IMF) on Wednesday upgraded its growth forecast for China for this year to five percent, up slightly from the previous 4.8 percent predicted in October, despite ongoing trade frictions.

But the global financial institution also warned that the country's prolonged property sector declines, local government debts and insufficient domestic demand will together drag down its annual growth rate to 4.5 percent in 2026, though the forecast is still higher than the previous 4.2 percent.

"We [also] anticipate some falling of exports in the environment of higher trade tensions. And it would take time for the domestic sources of growth to kick in," said Kristalina Georgieva, IMF's Managing Director.

"The Chinese economy is very big. It's like a big ship. Changing course takes time and therefore we see domestic consumption and investments still being somewhat weaker," she told reporters in Beijing.

The IMF urged China to implement more "forceful measures with greater urgency" to address the country's "domestic imbalances", calling on the nation to transition to a consumption-led growth model, away from an over-reliance on exports and investment.

It recommended a macroeconomic policy package focusing on three key areas: issuing additional fiscal stimulus, further monetary easing, and reforms to cut excessive savings held by households.

"Fiscal policy should prioritise strengthening the social protection system to give people the confidence and security they need to spend more and save less," Georgieva said.

"Our analysis suggests that raising social spending, especially in rural areas, and accelerating 'Hukou' reforms that provide migrant workers with access to social benefits can boost consumption by up to 3 percentage points of GDP in the medium term."

The former vice president of the European Commission also called on the country to "scale back" policy support for certain industries and firms, so as to create fiscal savings that can be "redeployed" to increase social spending, while resolving the real estate slowdown and unlocking domestic demand.

Together with reforms on easing regulatory burdens and further opening up, the policies could "substantially raise China's GDP level by about 2.5 percent by 2030, creating some additional 18 million jobs, and reducing deflationary pressures", she said.

Her comments also came as the country's latest official data showed that core consumer prices, excluding volatile factors, remained unchanged in November, partially weighed down by continuous property declines, while factory deflation worsened with producer prices falling 2.2 percent.

"We calculated that to resolve resolutely the property sector problem, China will have to spend five percent of its GDP over the next 3 years. That should provide a fillip to consumption going forward," Georgieva said.

Echoing Georgieva, Sonali Jain-Chandra, IMF's mission chief for China, said the fund calls on the country to take more flexible exchange rate adjustments both on the up and down sides - based on economic fundamentals.