Our economic outlook for China

June 25, 2024

Our outlook for year-end 2024


Economic growth,
year over year

A reduced risk of policy complacency after recently announced support for the property sector supports growth. That support, coupled with bright spots in manufacturing, infrastructure investment, and exports, makes China’s official target for growth “around 5%” achievable. We expect growth to hit a soft patch in the second quarter before stabilizing around trend in the second half of the year. However, fundamentals remain fragile, with supply and demand out of balance, which could challenge that growth’s sustainability.


Core inflation, year over year

Pro-growth policy measures could spur a rise in consumer prices, for which there is ample capacity after a brief deflationary period at the start of the year. We expect any reflation to be mild, however, and to depend on a revival in consumer confidence. We foresee inflation remaining well below the 3% target set by the People’s Bank of China (PBOC) given supply-demand imbalances and growth below potential.


Monetary policy rate

We expect only modest easing from the current 1-year medium-term lending facility rate of 2.5% given concerns about banks’ net interest margins and the likelihood of a “higher for longer” Federal Reserve. We expect the policy rate to stay lower for longer given the need to sustain a growth recovery and ensure a smooth deleveraging from China’s property overhang.


Unemployment rate

We foresee the unemployment rate remaining around current levels over the course of the year, below the government’s 5.5% target. Although the headline unemployment rate should remain stable, growth in jobs and wages is tilting toward the lower-income end of the labor market, which could lead to a lackluster recovery in household consumption.

What Im watching

The mixed impact on global goods prices from China's uneven recovery

The idea that China is “exporting deflation” doesn’t hold globally. Although its excess manufacturing capacity amid tepid domestic demand helps lower goods prices in the U.S. and the euro area, China’s booming manufacturing and infrastructure investments drive up energy and industrial metals prices, which especially affects commodities producers such as Australia.

Grant Feng

Grant Feng,
Vanguard Senior Economist

A bar chart showing the impacts of China’s excess capacity and investment demand on goods inflation in the U.S., the euro area, and Australia. For the U.S., excess capacity lowers prices by 18.3% and investment demand increases prices by 7% for a total impact of –11.3%. For the euro area, excess capacity lowers prices by 15.7% and investment demand increases prices by 12.6% for a total impact of –3.1%. For Australia, excess capacity lowers prices by 2.5% and investment demand increases prices by 26% for a total impact of 23.4%.

Notes: We use China’s export prices as a proxy for the impact of excess capacity and China’s fixed asset investment as a proxy for the impact of investment demand. We expect a 6% drop in export prices this year and a 5.5% increase in fixed asset prices. We use a vector autoregressive model incorporating each economy’s output gap, policy rate, and goods price inflation, and China’s export prices and fixed asset investment to estimate China’s spillover to goods inflation. 

Source: Vanguard calculations using data from CEIC as of June 8, 2024.

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

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