China, Australia

Our economic and market outlook for 2024

December 12, 2023

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.

Qian Wang, Vanguard Asia-Pacific chief economist

“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

4.5%5%

Economic growth,
year-over-year

We foresee continued normalization of China’s economy in 2024, with growth at an above-trend but slower pace following the 2023 rebound from COVID-19 lockdowns. We expect the impact of policy easing, which has already occurred and is likely to continue, to feed into the economy and help shore up domestic demand. Additional stimulus is needed to sustain China’s recovery amid lingering downside risks including fragile business confidence, a prolonged property downturn, deteriorating external demand, and a faster decline in potential growth.

1%1.5%

Core inflation, year-over-year

Inflation is likely to increase modestly alongside a recovery in China’s economy. But we expect it to remain well below the People’s Bank of China’s 3% target given a slow healing of private-sector balance sheets and confidence. The nation’s output gap—the difference between actual and potential growth—is narrowing but likely to remain negative in 2024. We foresee headline inflation, which includes the volatile food and energy prices that core inflation strips out, of 1.5%–2% compared with 2023.

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 late-2023 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. We also anticipate further low-cost financing through the People’s Bank of China’s Pledged Supplementary Lending program to facilitate fiscal stimulus. 

4.8%

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 Im watching


Potential spillover of an uneven Chinese economic recovery

“China’s neighbors and global commodities producers stand to gain the most from the continued 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

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. We foresee full-year 2024 growth similar to what we expect for 2023. Recession remains a possibility in 2024, but in our baseline view we see Australia as more likely to avoid contraction. 

3%

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.

3.85%

Monetary policy rate

We expect policy interest rates to remain high into the second half of 2024 to ensure that inflationary pressures subside. Inflation in Australia peaked at a lower level than in many developed markets. When interest rates do come down, we don’t expect they’ll come tremendously far. We foresee the cash rate eventually settling in a range of 3%–4%, in line with our assessment of the neutral rate, the theoretical interest rate that neither stimulates nor restricts an economy.

4.6%

Unemployment rate

We expect an unemployment rate that touched 50-year lows after the pandemic to rise throughout 2024 as financial conditions continue to tighten in a higher-rate environment. The labor market is gradually loosening. Job vacancies have fallen in recent months, suggesting that firms are scaling back hiring plans.

What Im watching


A labor market starting to loosen its grip

“The Reserve Bank of Australia will want to see inflation remain on a downward trajectory before it will entertain interest rate cuts. That will require a loosening in the labor market. A recent decline in the ratio of job openings to the number of unemployed people suggests such a loosening, but there’s still a ways to go for that ratio to approach prepandemic levels.” 


Alexis Gray

Alexis Gray,
Vanguard Senior Economist

Source: Vanguard calculations, based on data from Bloomberg as of August 31, 2023.

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

A closer look

Joe Davis

Our outlook for 2024

A return to sound money, with interest rates above inflation, is a real positive.

Roger Aliaga-Diaz

Americas

U.S. resilience may finally give way to the effects of restrictive monetary policy.

Jumana Saleheen

Europe

Monetary policy starting to slow euro area, U.K. economies.

Abstract of balls leading into a circle

Return forecasts

Expected market returns, volatility levels over the next 10, 30 years.

Abstract of balls within linked circles

U.S. economy Q&A

Even in the unlikely event of long-term elevated inflation, a 60/40 portfolio could serve investors well.

Abstract of balls within red ribbon

U.S. dollar

A new, proprietary Vanguard index suggests the dollar is overvalued and will depreciate modestly in the coming years.