Our economic outlook for China
December 05, 2024
Our outlook for year-end 2025
4.5%
Economic growth,
year over year
Although near-term growth momentum may improve, we expect full-year GDP growth to decelerate in 2025 amid persistent structural and external headwinds, including a prolonged housing downturn, deepening supply-demand imbalances, and global trade developments.
1.5%
Core inflation, year over year
We foresee only a modest inflationary thrust from currency depreciation in the face of higher tariffs. Rather, supply-centric policy support has reinforced a negative feedback loop between weak demand and low prices. Both the magnitude and composition (that is, greater support to consumers) of policy stimulus are critical to breaking the cycle.
1.2%
Monetary policy rate
We expect further monetary easing, including interest rate and reserve requirement ratio cuts, to counter persistent deflationary pressure. We foresee further fiscal stimulus complementing accommodative monetary policy, including the use of flexible government funding to destock housing inventory. We expect cuts to the policy seven-day reverse repo rate to 1.2% by the end of 2025.
5.1%
Unemployment rate
We believe that structural mismatches in labor supply and demand, particularly among younger workers, may not be easily addressed in the near term and could require additional policy support. We foresee the unemployment rate remaining around current levels the rest of the year.
What I’m watching
China’s holistic fiscal policy stance
Monetary policy has likely reached the limits of its ability to stimulate the economy given weak domestic demand, with liquidity injections being offset by softening business sentiment. To significantly increase growth momentum, fiscal policy needs to take the lead. The heavy lift will fall to the central government, given local governments’ debt concerns. We expect monetary policy easing to support fiscal expansion. Further fiscal stimulus could take the form of budget revisions, with a debt-ceiling overshoot possible.
Grant Feng,
Vanguard Senior Economist
China's fiscal deficit and its components
Notes: Augmented fiscal deficit is a fiscal deficit measure that includes typically off-budget activities, including local government financing vehicles and land sales.
Source: Vanguard calculations, based on Ministry of Finance data as of August 31, 2024.
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