China’s Economy to Grow Less Than Expected Due to Property Market Struggles
China’s economy is projected to grow less than previously anticipated this year and next, primarily due to challenges in the property market. Economists warn that the risks are skewed towards further downgrades, posing not only a threat to China’s economy but also to the global economy.
Struggling Property Market
- China’s economy has been struggling after a brief post-COVID recovery.
- The property market downturn, coupled with huge debt from infrastructure investment, has contributed to the challenges.
- 70% of household wealth is tied up in the ailing property market.
- Rising youth unemployment, weak consumption demand, and depressed private firms’ reluctance to invest further hinder growth.
According to a Reuters poll of 76 analysts, the projected growth rate for China’s economy has been revised downwards.
- The economy is expected to grow by 5.0% this year, lower than the previously forecasted 5.5%.
- Forecasts range between 4.5% and 5.5%.
- While the cuts in growth outlook were marginal, there is still room for further downgrades.
- Some economists believe that the government’s growth target of around 5% for this year may be missed.
Policy Support and Risks
While recent data shows signs of improvement, economists argue that more policy support is needed for the struggling property sector, which accounts for a quarter of China’s economy.
- Growth is projected to slow to 4.5% next year and 4.3% in 2025.
- There is a downside risk that household consumption may improve more slowly than expected.
- U.S.-China trade tensions and the diversification of supply chains beyond China add to the downside pressure.
- A majority of economists believe that the risks to GDP growth forecasts for 2023 and 2024 are skewed towards the downside.
Inflation Forecast and Monetary Policy
Economists have revised their consumer price inflation forecast downwards.
- Inflation is projected to be 0.6% this year and 1.9% next year, down from the previous expectations of 1.1% and 2.1%.
- The People’s Bank of China is expected to keep its key interest rates unchanged this year.
Economic Stimulus Package
When asked about the possibility of an aggressive economic stimulus package, the majority of economists believe it is unlikely.
- Local governments, responsible for 85% of expenditures, are heavily indebted, limiting their ability to provide significant stimulus without further undermining their finances.
Reporting by Vivek Mishra; Additional reporting by Devayani Sathyan; Analysis by Anant Chandak; Polling by Veronica Khongwir in Bengaluru and Jing Wang in Shanghai; Editing by Kevin Yao, Ross Finley, and Sam Holmes
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