Kavan Choksi Wealth Advisor Discusses the Expectations for China’s Economy in 2024

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Uncertainties associated with China’s economy remain high in 2024. Among other factors, its economy is likely to be dragged down by the ongoing property market slump. As per Kavan Choksi Wealth Advisor, the International Monetary Fund (IMF) expects China’s gross domestic product (GDP) to grow by 4.6 per cent in 2024, before slowing to 4 % in 2025, as a result of ongoing property sector strains. The property market slump is likely to further dampen private demand and confidence. The local government budget strains are also likely to play a role in slowing down its GDP growth.

Kavan Choksi Wealth Advisor talks about what is expected from China’s economy in 2024

The second-largest economy of the world has slowed from the double-digit growth of past decades.  At first, it was weighted down during the pandemic by Covid-19 restrictions, and more recently by a slump in the real estate market. Broadly speaking, uncertainties surrounding China’s economy are quite high at the moment, especially due to the existing large imbalances and associated vulnerabilities. In such a scenario that entails a deeper, more prolonged contraction in the property sector, GDP in 2025 is likely to be 1.8 % lower compared to the baseline [of 4 per cent]. In 2023 China’s economy grew by a higher-than-expected 5.2%, and Beijing is again expected to set a GDP growth target of approximately 5 % for 2024.

The recovery of China’s economy from the Covid-19 pandemic has been pretty patchy. Its growth has been weighed down by many factors, including the local government debt crisis, prolonged real estate market downturn, as well as weak demand and heightened geopolitical tensions. Additional shocks to earnings and growth amidst high debt levels with certain local governments in China and its property sector can lead to superior balance sheet stress and weaker lending capacity, including at smaller local financial institutions.

In 2024, it is vital for China to try to manage the downside risk in the economy in a competent manner, especially when it comes to housing market correction and its spillover risks. With the turnaround in global commodity prices and domestic pork prices, deflation pressure is likely to fade in 2024. However, low inflation is expected to stay along with insufficient domestic demand. While tech and certain other sectors have grown rapidly in China, it is still not enough to offset housing and other drags on growth.

As Kavan Choksi Wealth Advisor mentions, even though substantial growth has been experienced in domains like electric cars and tourism, the economy of China did not rebound from the pandemic as quickly as many banks had initially expected. In fact, Beijing made the rare decision to increase the official fiscal deficit in October last year.

The macro policy in China is expected to notably ease in 2024, especially by the central government, for the purpose of supporting the economy and to prevent real GDP growth from decelerating too much from 2023 to 2024. In the long term, analysts expect China’s economy to slow further from a high base.

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