A Reuters poll indicated that China’s economic growth will probably drop to 4.6% in 2024 and then to 4.5% in 2025, putting pressure on officials to implement more stimulus measures in the face of deflationary pressures and a sharp decline in real estate prices.

The median projections of 58 analysts surveyed by Reuters indicate that the gross domestic product (GDP) rose 5.2% in 2023, reaching the government’s yearly growth target, in part because of the previous year’s low-base effect, which was characterised by COVID-19 lockdowns.

However, the second-biggest economy in the world has found it difficult to recover from the COVID-19 pandemic because to a number of issues, including a protracted property crisis, low trust among consumers and businesses, growing local government debt, and sluggish global growth.

According to recent data, the economy was off to a rough start in 2024. This was likely due to ongoing deflationary pressures and a minor increase in exports, which did not appear likely to spark a rapid reversal in the dismal domestic activity. Bank lending declined in December as well.

“China’s economic outlook for 2024 will be shaped by the prospects of the real estate sector,” analysts at Swiss Life Asset Management said in a research note.

“The government’s aim is to reduce the oversupply that has built up in the sector in recent years, and to bring supply into line with actual demand. We therefore expect the slowdown to continue over 2024 and beyond.”

The poll indicated that the GDP grew at a faster rate in the fourth quarter of 2023 than it did in the third, probably 5.3% from a year earlier.

However, the poll revealed that the economy is expected to grow by 1.0% in the fourth quarter, down from 1.3% in the July-September period.

On Wednesday, the government is scheduled to reveal GDP figures for 2023 and Q4, as well as activity data for December.

“The fragile recovery could remain on track in December though it could be a soft patch,” analysts at Citi said in a note. “Policy delivery could be key to watch in the next few months.”

Officials with knowledge of Chinese policy anticipate Beijing to stick to its growth objective of roughly 5% in 2023.

This year, the People’s Bank of China (PBOC) has promised to increase policy support for the economy and encourage a price recovery.

However, the fact that more credit is going to productive sectors than to consumption presents the PBOC with a conundrum because it may increase deflationary pressures and lessen the impact of its monetary policy tools.

Despite market expectations for a reduction, the People’s Bank of China (PBOC) maintained the medium-term policy rate on Monday, despite ongoing pressure on the yuan currency to restrict the extent of monetary easing.

The one-year loan prime rate (LPR), or benchmark lending rate, was predicted by analysts surveyed by Reuters to be lowered by 10 basis points (bps) by the central bank in the first quarter.

The PBOC may also decrease banks’ reserve requirement ratios (RRR) in March-April, if economic indicators continue to decline, Wen Bin, chief economist at Minsheng Bank, wrote in a note.

The government is expected to push through more fiscal expenditure to spur economy, according to analysts. The government unveiled 1 trillion yuan in sovereign bonds in October to fund investment projects.

According to the poll, consumer inflation is expected to increase from 0.2% in 2023 to 1.0% in 2024 and then further to 1.6% in 2025.

(Adapted from Reuters.com)

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