China 2025 Outlook: A year where uncertainty becomes new normal
The Chinese economy has continued its slowdown into 2024, with domestic consumption and investment weakening throughout the year.
There are some signs of recent stabilization towards the end of the year, but the slowdown was evident comparing to the pre-pandemic momentum. This decline in demand has led to persistent deflationary pressures. Against the backdrop, external trade has emerged as a notable bright spot, significantly bolstering GDP growth, which is expected to end the year relatively close to the official target of 5%.
Looking ahead to 2025, policy stimulus will be key.
While the government has made fiscal announcement during November 2024, the implemented measures are more of a rescue package than actual fiscal expansion. This has, then, not changed the persistent but gradual slowdown in consumption, especially if income growth continues to decelerate. This trend will only be exacerbated by the negative sentiment stemming from an increasingly uncertain external environment. Fixed asset investment is also unlikely to recover significantly, as the real estate sector still takes time to absorb the inventory without an acceleration in sales growth.
External trade is expected to encounter greater challenges, making it more difficult to sustain current growth rates, especially in light of the re-election of the Trump administration and the anticipated increase in protectionist measures globally.
In response to these challenges, additional stimulus measures will be needed. We expect monetary and fiscal policies to become more accommodative to prevent a sharper decline in consumption and investment. The PBoC may also consider allowing further depreciation of the yuan to mitigate the impact of tariffs imposed by other countries on Chinese exports, particularly from the US. However, the pace of the stimulus may still be cautious.
Overall, we project China's GDP growth rate to moderate to 4.5% in 2025, with domestic demand playing a crucial role in offsetting the slowdown in export activities.
Some risks are worth mentioning. The most concerning one is further escalation of the geopolitical conflict, which may spark a broad-based trade war. There is also a risk that the stimulus measures may fall short of market expectations, particularly in the context of a stronger-than-expected US dollar, which could limit the government's ability to implement rapid interest rate cuts. Furthermore, if the asset market continues to face pressure, the resulting subdued wealth effect could pose additional risk to the economy in 2025.
Source: https://aliciagarciaherrero.substack.com/p/china-2025-outlook-a-year-where-uncertainty
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
