According to a survey of Chinese economists compiled by Nikkei, the average forecast for China’s real gross domestic product growth in 2024 is 4.6 per cent. The majority view is that the growth rate will be lower than 2023, and the severe situation will continue due to the sluggish real estate market and stagnant consumption.
China’s growth forecast for 2023 averages 5.2 percent, within the government’s “around 5 percent” range. It was up 0.2 percentage points from the last survey about three months ago. From October to December, growth is expected to be 5.1 percent year on year, and 1.4 percent on a quarter-on-quarter (seasonally adjusted) basis, which indicates economic growth momentum, slightly accelerating from 1.3 percent in July-September.
Kgi Securities raised its growth forecast for 2023 by 0.2 percentage points to 5.3%, arguing that industrial output above designated size showed better-than-expected growth and stressed that production showed a recovery trend. In November, China’s industrial production increased by 6.6 percent year-on-year, up from 4.6 percent in October, driven by vehicles focused on pure electric vehicles (EV).
However, in the survey, Sophie Altermatt of Swiss bank Julius Baer said that “while there is an improving trend on the supply side, such as industrial output above scale, the divergence from the sluggish demand side, such as retail sales, continues”, pointing out that the imbalance is striking.
Tetsuji Sano of Sumitomo Mitsui DS Asset Management said that “if you increase supply in a situation where the demand deficit is worsening, prices [of commodities] will fall and there will be an unexpected increase in inventories”, arguing that a temporary increase in production will not lead to an essential recovery.
Growth in 2024 is expected to range from 4.4% to 5%, and all economists who answered the growth rate forecast a slowdown compared to 2023. The 2023 growth rate is boosted by the reverse effect of the previous year’s decline due to strict epidemic prevention measures. In 2024, despite the disappearance of these special factors, the majority view is that the momentum itself is weak.
The survey, which asked questions about issues facing the economic recovery, focused on “the downturn in the housing market,” followed by “fragile consumer sentiment.” It is worth noting that the real estate market is the source of insufficient demand, including consumption, and the two are intertwined to affect the economy.
In China, housing accounts for a large proportion of household assets. As house prices fall, the tendency for people to prioritise debt repayment and curb consumption is strengthening. Sano also pointed out that in the face of insufficient demand, companies will restrain wages in order to secure profits, resulting in a “vicious circle” of sluggish consumption.
Mizuho Bank, which forecast a 4.6 percent growth rate in 2024, said, “Behind the sluggish consumption is the negative wealth effect (reduced consumption due to falling asset prices) and the employment and income environment that is not recovering after the COVID-19 pandemic.”
A recovery in the housing market is not yet in sight. Since August, China has introduced measures such as lowering the down payment ratio of the total purchase price, but the price of new residential buildings in 70 large and medium-sized cities has been lower than the previous month for six consecutive months as of November. While the stimulus has boosted sales of existing homes, it has not been enough to boost demand for new homes, said Helen Qiao at Bank of America, arguing that the effort is still insufficient.
Jeremy Zook of Fitch Ratings sees a “high probability of further declines in property sales and starts in 2024.” S&P Global Inc. ‘s Louis Kuijs forecasts growth of 4.6 percent in 2024, but warns it “could fall to 2.9 percent if the housing crisis worsens.”
In 2024, real estate developers led by China Evergrande Group have fallen into cash turnover difficulties, and the problem of housing completion and delivery to buyers can be improved will become a focus.
The People’s Bank of China in November instructed commercial banks to increase the proportion of loans to private companies. Still, banks are wary of a bulge in non-performing loans and may be reluctant to lend to private developers unless forced to do so, says Jian Chang of Barclays. So the developer crisis is likely to continue to heat up.
Policy operation is becoming more difficult. In October, China offered to issue 1 trillion yuan of new Treasury bonds. “It shows that the central government is aware of the problems of local governments,” says Ana Boata of Allianz Trade, an investment bank. The risks are under control.”
However, U.S. rating agency Moody’s Investors Service on Dec. 5 lowered its outlook on China’s credit rating from “stable” to “negative.” The reason is that the central government is increasingly inclined to provide financial support to financially troubled local governments and state-owned enterprises. Carlos Casanova of UBP, a bank, points out that “fiscal deficits will increase in the coming years, increasing pressure on government bond ratings”.
As China turns to population decline in 2022, the survey’s reference to slower growth in the medium and long term stands out. Bert Burger of Atradius said: “It is inevitable that ageing and a shrinking workforce will hamper economic growth. High youth unemployment and an underdeveloped social security system coexist.”
Goldman Sachs ‘Shan Hui points to three structural factors – oversupply of real estate, fiscal difficulties of local governments, which are responsible for about 70% of infrastructure investment, and geopolitical risks – that will lead to a significant slowdown in economic growth over the next decade, which he believes will slow to about 3% by 2034.