China’s Growth Outlook for 2024 Is Raised To 4.8%, But Deflation Risk Persists
After a better-than-expected first quarter, analysts raised their growth projection for China this year, yet they continue to see evidence that the world’s second-biggest economy would struggle to overcome deflationary forces.
As per the median estimate of an economist survey conducted by Bloomberg, the growth of the gross domestic product is now expected to reach 4.8%. That is slightly closer to the government’s target of roughly 5% and up from the 4.6% predicted in the poll conducted last month.
Lower inflation estimates than in the March survey suggest that household expenditure has been weakening since the real estate slump. Inflation on consumer prices is now predicted to average 0.6% in 2024, down from 0.8%. Double the March estimate, industrial prices are predicted to decline at an average pace of 0.6%.
The Chinese economy enjoyed a surprisingly strong start to the year, bolstered by overseas demand for its manufactured goods and Beijing’s push to develop advanced technologies. But much of the bounce came in January and February. Consumption lost momentum in March and the housing slump deepened, pointing to challenges for the rest of 2024 that may require more stimulus to address.
According to Nie Wen, chief macro analyst of Hwabao Trust Co., “real estate and its upstream and downstream sectors are shrinking across the board, constantly driving down social expectations as well as overall demand.” “Investment by the government is desperately needed to stabilize or increase demand.”
Nine out of the fifteen economists surveyed claimed that the largest risk to China’s GDP this year is the property collapse, while four said that the main concerns are low inflation and weak domestic demand. There was a similar divide about Beijing’s course of action, with steps to support real estate investment coming up first and increased public spending second.
Especially local governments, many of which are facing a debt problem, have been reducing their expenditures. Following years of excessive off-balance-sheet borrowing, they are now being negatively impacted by declining land sales and tax revenue.
As a countermeasure, Beijing has declared its intention to increase central government spending. However, the issue of government bonds has lagged behind schedule, in part because authorities were still searching for suitable projects to invest the money they raised the previous year.
According to officials, debt sales may increase in the upcoming months, providing a financial boost. China’s main economic planning body, the National Development and Reform Commission, announced on Tuesday that projects needing a total investment of 5.9 trillion yuan ($814 billion) have been screened and approved for special local-bond funding. For utilizing the 3.9 trillion yuan of those bonds that are scheduled to be sold this year, the commission referred to it as a “solid foundation.”
Investors are keeping a tight eye on the Politburo meeting later this month, which is likely to bring together the 24 most senior leaders of the Communist Party and provide insight into potential changes to the party’s economic policies in the months ahead.
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