25 December 2023
The Conference Board’s China Center for Economics and Business forecasts below-trend growth for China’s economy in 2024, citing several key factors.
China’s economic recovery from the pandemic has been hampered by a range of challenges, and according to the Conference Board’s China Center for Economics and Business, the struggle is expected to continue into 2024. The initial rebound in the first quarter of 2023 was short-lived, as issues such as indebted real estate giants, aging demographics, and high youth unemployment weakened the labor market and pushed the country into deflation. While there was a brief uptick in growth in the third quarter, the Conference Board predicts a further slowdown in 2024. This article explores the four main reasons behind this forecast and their potential implications.
Pent-up demand expected to decline
The Conference Board highlights that the recent increase in consumption in China was driven by pent-up demand, which is likely to recede in the coming months. The economists argue that consumer confidence remains weak, with concerns about financial security and the labor market. Additionally, Beijing’s policies that discourage spending and promote precautionary saving further dampen consumption. As a result, sustainable recovery in consumption has not yet been achieved.
Real estate slump continues to weigh on growth
The Chinese real estate sector has been experiencing a significant downturn, with major developers defaulting or declaring bankruptcy. Despite attempts by authorities to stabilize the sector, the Conference Board views the slump as structural and likely to be permanent. Chinese households have lost confidence in property as a channel for wealth accumulation. The economists predict that the sector has yet to reach its lowest point, and efforts to revitalize demand will be challenging for Beijing.
Foreign demand for Chinese products set to slow
China’s export-oriented economy heavily relies on foreign demand for its products. However, a global economic slowdown, particularly in the US and Europe, poses a threat to Chinese exports. The Conference Board anticipates that demand for China’s manufacturing exports will continue to moderate as the global downturn persists. The economists emphasize that China cannot export its way out of the aggregate demand problem caused by the real estate downturn.
Limited scope for major stimulus measures
Given China’s deep-seated structural issues, the Conference Board cautions against implementing large-scale stimulus packages. While there is some room for policy interventions to stimulate credit growth and investments, the economists argue that significant stimulus measures could lead to economic inefficiencies and speculative investments. The Chinese government has refrained from implementing a broad-based stimulus package but has increased monetary and fiscal measures to stimulate targeted investments, particularly in infrastructure for flood recovery and disaster prevention.
Conclusion: The Conference Board’s forecast of below-trend growth for China’s economy in 2024 highlights the challenges the country faces in its recovery. The decline in pent-up demand, the ongoing real estate slump, slowing foreign demand, and the limited scope for major stimulus measures all contribute to the projected slowdown. As China navigates these obstacles, policymakers will need to carefully balance short-term measures with long-term structural reforms to ensure sustainable growth in the future.
