China, Australia

Our economic and market outlook for 2024

May 16, 2024

Policy is likely to work in opposite directions in China and Australia in 2024. We anticipate that China will introduce further stimulus to support an economic recovery amid material downside risks. In Australia, we foresee restrictive policy remaining in place as progress in the inflation fight continues to be gradual.

“Further fiscal and monetary stimulus in China would benefit the Asia-Pacific region, especially commodities exporters such as Australia. But policymakers will need to find a fine balance given steady headwinds, not least of which are concerns about financial stability.”

– Qian Wang, Vanguard Asia-Pacific Chief Economist

China

Our outlook for year-end 2024

4.9%

Economic growth,
year-over-year

Meeting the government’s official GDP growth target of “around 5%” will be more difficult this year than last year, when year-earlier comparisons were easier. Meeting the target will require decisive and timely policy stimulus, given persistent economic challenges stemming from an extended property downturn.

Core inflation, year-over-year

A February increase in headline inflation doesn‘t necessarily spell an end to China‘s recent dip into deflation. We foresee elevated real interest rates continuing to weigh on prices. We foresee both headline and core inflation of around 1% for 2024, well below the central bank‘s 3% target.

2.2%

Monetary policy rate

We expect the benchmark 1-year medium-term lending facility rate to be cut by up to 0.3 percentage points from its current level of 2.5%. We think it’s likely that the policy rate will remain lower for longer given lower potential growth and a lower neutral rate, along with the need to sustain growth and ensure a smooth medium-term deleveraging. We expect further reductions in 2024 in the ratio of reserves that China’s banks must keep on hand.

5.1%

Unemployment rate

We foresee China’s urban unemployment rate easing marginally as the economy continues to recover, which would help support household income and consumption growth. A high youth unemployment rate could improve somewhat in the short term, though a mismatch between skills and job expectations will likely prevent it from falling sharply.

What I’m watching

Potential spillover of an uneven Chinese economic recovery

“China’s neighbors and global commodities producers stand to gain the most from any recovery in China’s domestic demand in 2024, as stronger infrastructure and consumer spending help cushion the persistent housing downturn. The effect on the United States and euro area would be smaller given their lesser exposure to China’s economic activity.”

Grant Feng,
Vanguard Senior Economist

A bar chart showing the potential effects as a percentage of GDP on eight countries or regions of a 1% increase in Chinese consumption, a 1% increase in Chinese infrastructure investment, and a 1% decrease in Chinese property investment. For Chile, the increase in Chinese consumption would boost growth by .024% of GDP. The increase in Chinese infrastructure investment would boost growth by .015% of GDP. The decrease in Chinese property investment would detract from growth by .012% of GDP. The total impact would be a gain of .027% of GDP. For South Korea, the increase in Chinese consumption would boost growth by .024% of GDP. The increase in Chinese infrastructure investment would boost growth by .011% of GDP. The decrease in Chinese property investment would detract from growth by .008% of GDP. The total impact would be a gain of .026% of GDP. For Australia, the increase in Chinese consumption would boost growth by .021% of GDP. The increase in Chinese infrastructure investment would boost growth by .012% of GDP. The decrease in Chinese property investment would detract from growth by .010% of GDP. The total impact would be a gain of .024% of GDP. For Brazil, the increase in Chinese consumption would boost growth by .020% of GDP. The increase in Chinese infrastructure investment would boost growth by .004% of GDP. The decrease in Chinese property investment would detract from growth by .003% of GDP. The total impact would be a gain of .021% of GDP. For Japan, the increase in Chinese consumption would boost growth by .009% of GDP. The increase in Chinese infrastructure investment would boost growth by .005% of GDP. The decrease in Chinese property investment would detract from growth by .004% of GDP. The total impact would be a gain of .010% of GDP. For the euro area, the increase in Chinese consumption would boost growth by .008% of GDP. The increase in Chinese infrastructure investment would boost growth by .003% of GDP. The decrease in Chinese property investment would detract from growth by .002% of GDP. The total impact would be a gain of .008% of GDP. For Canada, the increase in Chinese consumption would boost growth by .006% of GDP. The increase in Chinese infrastructure investment would boost growth by .001% of GDP. The decrease in Chinese property investment would detract from growth by .001% of GDP. The total impact would be a gain of .006% of GDP. For the United States, the increase in Chinese consumption would boost growth by .003% of GDP. The increase in Chinese infrastructure investment would boost growth by .001% of GDP. The decrease in Chinese property investment would detract from growth by .001% of GDP. The total impact would be a gain of .004% of GDP.

Notes: To estimate the effects of China's 2024 economic activity on othe countries and regions, we applied a 1% increase in China consumption growth, a 1% increase in China infrastructure development, and a 1% decrease in China property investment to the Organization of Economic Co-Operation and Development's (OECD's) Trade in Value Added (TiVA) indicators.

Source: Vanguard estimates, based on data from CEIC and OCED TiVA, as of September 30, 2023.

Australia

Our outlook for year-end 2024

0.75%–1.25%

Economic growth,
year-over-year

Australia’s economy has remained resilient in the face of interest rate hikes. Leading indicators suggest a soft start to the new year, with growth below trend. But a still-tight labor market continues to support household spending. In our baseline view, we continue to expect that Australia will avoid a recession in 2024.

Core inflation, year-over-year

We foresee both headline and core inflation retreating to year-on-year gains of around 3%. But we expect the gains to be only gradual. Sluggish productivity growth is fueling rises in nominal unit labor costs that are inconsistent with fast-falling inflation. Core inflation, which excludes volatile food and energy prices, may be sticky for some time.

4.35%

Monetary policy rate

We foresee the RBA being one of the last developed markets central banks to cut its interest rate target, doing so only in 2025. When interest rates do come down, we expect them to settle in a range of 3%–4%, in line with our assessment of the neutral rate.

4.6%

Unemployment rate

We expect an unemployment rate that touched 50-year lows after the pandemic to rise in 2024 as financial conditions tighten in an environment of elevated interest rates.

Notes: All investing is subject to risk, including the possible loss of the money you invest.

A closer look

Our full 2024 outlook