The global economy is bracing for the wider implications of China’s slowing economic growth, as the World Bank projects a further decline in China’s growth rate in 2025. Despite recent stimulus measures providing a temporary lift, the World Bank forecasts China’s growth to drop to 4.3% in 2025, down from a revised 4.8% in 2024. This slowdown in the world’s second-largest economy is expected to reverberate across global markets, affecting everything from trade to investment flows, and reshaping the broader economic landscape.

Short-Lived Stimulus Boost

China’s recent stimulus measures, particularly focused on monetary policy, helped raise the World Bank’s 2024 growth forecast by 0.3% from April’s estimate. The stimulus, which briefly boosted investor confidence and led to a stock market rally, has since lost momentum. However, the World Bank’s 2025 growth projection remains unchanged, reflecting the deeper structural issues that these measures have failed to address.

“The question is whether [the stimulus] can actually offset consumer concerns about declining salaries, concerns about declining property incomes and fears about falling ill, growing old, becoming unemployed,” said Aaditya Mattoo, East Asia and Pacific chief economist at the World Bank, speaking to CNBC’s Street Signs Asia.

Consumer spending in China remains weak due to these concerns, compounded by persistent property market struggles, an aging population, and rising global tensions. These factors weigh heavily on China’s economic outlook and, by extension, the global economy.

Global Impact of China’s Slowdown

China’s slowing growth has far-reaching consequences for the world economy, especially for countries and regions that rely on Chinese demand and investment. For decades, China has been a key driver of global economic growth, with its rapid expansion boosting trade, investment, and economic development in neighboring countries and beyond. However, as China’s growth slows, the positive spillover effects are beginning to diminish.

“For three decades, China’s growth has spilled over beneficially to its neighbors, but the size of that impetus is now diminishing,” the World Bank said in its report.

The World Bank estimates that the East Asia and Pacific region will grow at 4.7% this year and rise to 4.9% next year. While this forecast shows resilience, the region will need to find more domestic drivers of growth as China’s influence wanes. The rest of the global economy, particularly those economies deeply intertwined with China’s supply chains and consumer markets, will also feel the effects of this slowdown.

Structural Issues Beyond Stimulus

China’s recent stimulus has primarily focused on supply and investment, with little impact on consumer spending, which is crucial for sustaining long-term growth. James Sullivan, head of Asia-Pacific equity research at JPMorgan, pointed out that this imbalance between supply and demand raises critical questions for China’s economic future.

“The million-dollar question in China right now is, does [the stimulus] only flow into the supply side of the equation, or does it ultimately flow through into consumer demand? That’s not our expectation right now,” Sullivan said.

Without addressing the underlying issues of weak consumer demand and an over-reliance on investment-driven growth, China may find it difficult to sustain its current growth rates. The World Bank has long advocated for deeper reforms in China, including boosting competition, upgrading infrastructure, and reforming education, to drive sustainable growth. However, these structural reforms are slow-moving and face significant political and economic hurdles.

Global Markets Brace for Uncertainty

Hui Shan, chief China economist at Goldman Sachs, noted that China’s growth rate next year would largely depend on the size of any additional stimulus packages and the outcome of the U.S. presidential election in November. Uncertainty surrounding the global geopolitical landscape, coupled with China’s internal challenges, makes it difficult to predict the full impact of its slowing economy.

Meanwhile, China’s National Development and Reform Commission has pledged more action to bolster the country’s economy, including speeding up the issuance of special-purpose bonds to local governments. However, there have been no major announcements regarding new stimulus plans, leaving global markets on edge about the future trajectory of the Chinese economy.

Global Trade and Investment Shifts

As China’s growth decelerates, other economies will need to adapt to a changing global economic environment. Countries that have heavily relied on China for trade and investment will likely face challenges in finding alternative markets. This could lead to a reshuffling of global trade patterns, with countries seeking to diversify their export markets and reduce their dependency on Chinese demand.

The slowdown also has implications for global supply chains. With China being a major manufacturing hub, any significant contraction in its economy could lead to disruptions in global production networks, affecting industries from electronics to automotive. Countries dependent on Chinese exports, such as the United States and the European Union, may experience delays and increased costs in their supply chains.

The Path Ahead

China’s economic slowdown signals a shift in the global economic order. While the country has long been a powerhouse driving global growth, its deceleration will force economies around the world to recalibrate their strategies. For China, the challenge lies in implementing the structural reforms necessary to sustain long-term growth, while for the global economy, the task will be to adapt to a world where China’s role as the primary engine of growth is diminishing.

(Adapted from CNBC.com)

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