A survey of Chinese economists conducted by Nikkei Business News and Nikkei QUICK News shows that the average forecast for China’s real gross domestic product (GDP) growth rate in 2024 is 4.7%. Although it was 0.1 percentage points higher than the last survey three months ago, the momentum was still weak. The outlook is full of uncertainties due to risk factors such as the housing downturn and the U.S. presidential election.
The expected range is 4.0% to 5.1%. China proposed the same target of “around 5%” as last year at the National People’s Congress in March, but it is expected to be difficult to achieve. Premier Li Qiang also said it is not easy.
The average GDP forecast from January to March is 4.5% year-on-year growth. The added value of industrial enterprises above designated size from January to February increased by 7.0% year-on-year, and the growth rate accelerated from 6.8% in December 2023. Against the backdrop of improving production-related indicators, the quarter-on-quarter (seasonally adjusted) growth rate indicating economic momentum was 1.2%, a slight acceleration compared with October-December 2023 (1%).
Yao Wei of Société Générale believes that the growth in exports to the United States brought about by the easing of economic worries and infrastructure investment based on government support will support the economy, and the growth rate is expected to be 4.7%, which is higher than three months ago. Increased by 0.2 percentage points.
The risk is demand. Song Lin from ING Bank pointed out that the contribution of consumption in driving economic growth in 2023 will be limited. The negative wealth effect caused by the decline in asset prices leading to a decrease in consumption willingness has become a constraint. To achieve 5% growth, further policy support is needed.
Among the answers, there is basically a consensus that the biggest test is the real estate downturn. Real estate is considered to account for about 60% of total household assets, and the deterioration of the market has a prominent negative impact on consumption.
Brian Coulton of Fitch Ratings said that “there are still no signs of stopping the decline in real estate prices, and residential transaction volume will fall by up to 5% in 2024,” lowering the growth forecast by 0.1 percentage point to 4.5%.
Tetsuji Sano of Sumitomo Mitsui DS Asset Management expressed caution about a “vicious cycle of deflation.” The logic is that companies that are pessimistic about their performance prospects due to deflation will suppress wages, and as a result, consumers’ purchasing power will decline, leading to further deflation.
In 2023, for the first time in seven years, the nominal growth rate of GDP was lower than the actual growth rate. Sano pointed out that “it would not be surprising” even if this trend showing the intensity of deflationary pressure continues in 2024.
Dissatisfaction with fiscal policy is also evident. At the National People’s Congress meeting, the government stated that it would raise 1 trillion yuan through special government bonds in 2024, showing a posture of fiscal expansion.
Bert Burger of Atradius said, “(Treasury bond issuance) focuses on long-term investment such as infrastructure investment and technological innovation, and it is more beneficial to stimulate consumption willingness by increasing pensions and unemployment benefits.”
Macquarie Bank’s Hu Weijun believes that policymakers may have failed to recognize the urgency of stimulating the economy due to strong production-related indicators.
In fact, the expected average 1-year loan market quote rate (LPR, loan prime rate) equivalent to the benchmark interest rate (as of the end of 2024) is 3.27%, and the interest rate is expected to fall from March (annual 3.45%). Xie Jiaxi of DBS Bank believes that the People’s Bank of China will start cutting interest rates in the second half of 2024 in order to restore investment confidence.
The U.S. Federal Reserve (FRB) is hesitant to cut interest rates as the economy remains strong. If China lowers interest rates, the interest rate gap between China and the United States will widen, which may intensify the depreciation of the renminbi and capital outflows. Hsieh Jiaxi pointed out that the timing and extent of interest rate cuts depend on the United States.
The forecast average of the RMB at the end of 2024 is 7.08 yuan per US dollar, a slight shift towards depreciation compared with 3 months ago (7 yuan).
Katrina Ell, an economist at Moody’s Analytics, pointed out that “pessimistic views on the Chinese economy are strengthening due to real estate problems, so the yuan will weaken. If the interest rate differential with overseas countries such as the United States narrows, (the yuan depreciation pressure) may increase.” ease”.
Judging from the forecast average of growth rate, it is 4.4% in 2025 and 4.2% in 2026, showing a downward trend. China’s population will decrease for two consecutive years starting in 2022. Structural headwinds are increasing and the economic outlook is becoming increasingly bleak.
Li Houming of Lombard Odier sees growth at 3.9% in 2026, which will fall below the 4% mark. It is recommended to reconsider the premise of economic policy, saying that due to factors such as a declining birthrate, an aging population, and a mature economy, the growth rate in the next 10 years may drop to an average of less than 3.5%, and it is not a good idea to stick to the 5% target.
Trump’s victory may put pressure on the yuan to depreciate, and China will remain on hold on economic policy
The survey listed multiple options and asked about issues facing economic recovery. Most of the answers were “the downturn in the real estate market.” Followed by the “U.S. presidential election” in November.
Abrdn’s Robert Gilhooly pointed out that if former President Trump is elected, “there will be economic risks such as a substantial increase in tariffs on China, and the pressure on the yuan to depreciate will intensify.” The Chinese authorities have stated that they will seek policy flexibility in response to the impact. Gilhuly believes that China will retain its interest rate cuts and economic stimulus policies until after the U.S. election.
Wu Lixian of Everbright Securities also expressed vigilance, pointing out that Trump’s election will become a potential risk to the Chinese economy, and China policies related to trade and tariffs may change.
Trump made tough campaign promises such as imposing tariffs of more than 60% on imported goods from China. There is a possibility that the Sino-US trade war will reignite after 2018 and have an impact on China’s imports and exports.