Chinese economic data continue to fall short of consensus expectations across a range of key indicators, while high profile troubles in the property and ‘shadow banking’ sectors have increased the risks of a more serious downturn.

Indeed, we expect structural headwinds, particularly from the real estate sector, to weigh on growth through to 2025.

In particular, property weakness is likely to keep the stock of excess household savings unspent. But a normalisation of the savings rate – which is yet to return to pre-pandemic norms – should still provide some support to growth.

The plethora of incremental policy easing has pushed financial conditions into moderately accommodative territory, implying that policy should start to gain traction and guard against worse outcomes. But a continued focus on de-risking and self-sufficiency means additional stimulus will remain piecemeal and may struggle to change sentiment.

We recently trimmed our 2023 GDP forecast to 4.9% (-0.2pp) and now expect that growth for 2024 will fall short of consensus expectations (4% vs 4.5%), even as we factor in further policy loosening and a milder US recession. But ‘Japanification’ fears are wide of the mark. 

Both downside and upside risks around this baseline have risen. By keeping the policy response too tentative, de-risking could spark the crisis it seeks to avoid. On the other hand, a more forceful policy response could unlock the ‘coiled spring’ of excess savings and lead to a growth surge. 

 

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