Housing crisis continues to pull down the economy
|After a strong start to 2024, the Chinese economy lost momentum again in recent months with the housing crisis and weak consumer spending still being at the center of the challenges.
Looking ahead we expect more muddling through with new stimulus set to provide a lift to the rest of the year with the government committed to its’ 5% growth target. Still, we revise down growth to 4.8% for 2024 (previous 5.2%). In 2025 we continue to project growth of 4.8%.
Exports provided a tailwind in the first half of 2024 but export growth is expected to fade in the second half. We look for housing and consumption to stay weak over the forecast horizon as measures to turn the crisis remain too small. Chinese policy makers are set to increase stimulus measures in the coming quarters using both fiscal and monetary policy. However, a mini-bazooka is needed to drive a real recovery and we doubt this is coming.
Taking a step back, China continues to muddle through a long and painful transition from an old to a new growth model with less focus on real estate and ‘old’ infrastructure and more emphasis on new technology, high-end manufacturing, green-tech, ‘smart’ infrastructure and private consumption.
EU-China trade tensions have increased and we believe they are here to stay in the coming years. However, we don’t look for a big trade war. If Donald Trump wins back the White House, we expect a new US-China trade war in 2025.
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