Qatar National Bank (QNB) expects the Chinese economy to grow by around 4.8 percent in the absence of a major trade conflicts with the US, noting that this growth will be supported by positive momentum, more aggressive policy stimulus, and improving global financial conditions.
According to QNB, China, in recent decades, has been a dominant engine of economic growth for the global economy. During the period 2008-2019, which includes the years between the Great Financial Crisis and the Covid-pandemic, the Chinese economy expanded at an average rate of 8 percent, accounting for approximately 1/3 of global growth. Since then, a combination of domestic factors has led to a marked deceleration in the pace of economic expansion.
In its weekly commentary, QNB said that fears began to rise as attention shifted to the correction in property markets that seemed unable to find its trough, as well as the growing threat implied by mounting debts of local governments. The Bloomberg consensus forecasts pointed to 4.7 percent growth of GDP for 2024. Although this number is remarkable by international standards, it was 3.3 percentage points (p.p.) below the 8 percent average for China between 2008 to 2019.
It is unlikely that growth rates could return to the rocketing pre-pandemic average, given the structural developments that conduct the economy to a natural long-term trend of growth moderation. However, several tailwinds allow for an improvement in its growth performance this year. In this article, we discuss three factors that will support growth in China in 2025, said QNB commentary.
First, economic indicators are delivering positive surprises, with signals that the constructive momentum will persist. The Economic Surprise Index comfortably entered the positive range in Q4-2024, amid better-than-expected gauges across key production sectors. Property markets displayed signs of stabilization as the declines in prices and sales moderated, with some statistics even exhibiting positive growth. This comes after the government ramped up incentives in the sector by relaxing conditions on mortgages and announced funds for targeted projects and housing for lower-income families.
Second, the Chinese government is launching an aggressive battery of coordinated monetary and fiscal policy measures to provide stimulus to the economy. The Politburo led by President Xi Jinping announced it will conduct a “moderately loose” monetary policy strategy this year, anticipating a stance that had not been adopted since the Global Financial Crisis. Specifically, this has translated into expectations of interest rate cuts by 40-60 basis points (b.p.) by the PBoC, but will undoubtedly be accompanied by other measures of monetary easing. In the fiscal front, policymakers are expected to set a budget deficit target of 4 percent of GDP, the widest since 1994, and larger than the typical levels below 3 percent.
Third, the continuation of the easing cycles of central banks in major advanced economies contribute to improve external conditions for China. Last year, as inflation was brought under control, the European Central Bank and the US Federal Reserve cut rates by 100 and 100 b.p., respectively. This year, expectations point to additional cuts of 100 and 75 b.p. As a result, global financial conditions will continue to improve significantly. As central banks in major advanced economies cut rates, liquidity and credit expand. In addition, the PBoC will have more room to ease, as lower interest rate differentials means lessened concerns of capital flows leaving China to seek higher returns abroad. Thus, more favourable global financial conditions represent an additional factor to allow for more proactive policy easing that boosts growth.
