NIKKEI ASIA ECONOMY China economists expect slower 4.6% growth in 2024 Specialists think the country will achieve this year's target of around 5% © Reuters PEGGY YE, Nikkei staff writer December 26, 2023 16:00 JST

NIKKEI  ASIA 

ECONOMY

China economists expect slower 4.6% growth in 2024

Specialists think the country will achieve this year's target of around 5%

Customers shop at a Beijing wholesale market in September. Economists expect weak consumption to weigh on China's economy in 2024.   © Reuters

PEGGY YE, Nikkei staff writer

December 26, 2023 16:00 JST

HONG KONG -- Experts expect China's economic growth will slow in the coming year to 4.6%, following a predicted 5.2% expansion this year, amid a slump in the real estate market and stagnant consumption.

The average forecast by 25 China specialists for 2023 gross domestic product rose by 0.2 percentage points from the previous quarter in the latest survey conducted by Nikkei, Nikkei Asia and Nikkei Quick News.

Of the 25 economists, 23 expect this year's growth will be close to Beijing's official target of around 5%.

Among the 19 who provided growth forecasts in the previous poll, 12 have raised their outlook, with the seasonally adjusted quarter-on-quarter rate showing a slight improvement at 1.4%, from the previous 1.3%.

One of them, securities strategist Kenny Ng at Everbright Securities International, adjusted his full-year growth forecast to 5.6% from the previous 5.2%. He pointed to the "overall growth rate of the mainland's industrial added value" and how "retail market performance rebounded in October and November."

The economists' average prediction for growth in 2024 is 4.6%, 0.1 point higher than in the last forecast in September, with a range of between 4.4% and 5%.

The 2023 growth rate received a boost from following a low base in the previous year due to the COVID-19 pandemic. The economists remain cautious about the coming year, with a high downside risk driven by the property sector.

S&P Global Ratings sees a 4.6% growth rate in 2024 but cites a possible downside scenario of 2.9%, depending on what happens in the property sector. 

"With 2023 already in its final quarter, the impact of the downside scenario will show up substantially more in 2024," said Eunice Tan, head of credit research for Asia-Pacific at S&P Global Ratings. "Property pain is dragging on China's economic rebound, which further hits property sales in a negative feedback loop." 

Sophie Altamatt, an economist at Julius Baer, echoed this view. "The correction in the real estate sector is likely to continue in 2024 and weigh on investment, household confidence and local government finances," she said.

When asked what the critical economic challenges might be, 13 of the 17 economists who answered cited the "sluggish housing market" and "weak consumer confidence" as the top two risks, followed by a "lack of or insufficient policy measures," reflecting growing concerns over Beijing's ability to implement more effective stimulus measures.

Uncertainties remain regarding China's ability to resolve the challenges in its troubled real estate sector and deliver homes to buyers, since major indebted developers like China Evergrande Group and Country Garden Holdings continue to face financial difficulties.

Without mandatory rules, banks may hesitate to provide additional loans due to concerns about rising bad loans. "Banks were reluctant to extend loans to private developers,'' said Jian Chang, the chief China economist at Barclays Asia Pacific.

To support local governments' increasing financial difficulties due to a sharp drop in sales of land rights to developers, Beijing launched the issuance of new government bonds worth 1 trillion yuan ($140 billion) in October.

Tetsuji Sano, the chief Asia economist at Sumitomo Mitsui DS Asset Management, believes the financing is primarily intended to compensate for local governments' revenue gaps and support local financing platforms' debt servicing.

"The ability to support the economy through public investments such as infrastructure investment has reached its limit," Sano stated.

The U.S. rating agency Moody's Investors Service adjusted China's credit rating outlook to "negative" from "stable" earlier this month, saying the central government's increased support for local governments and state-owned enterprises could potentially undermine the country's fiscal strength and creditworthiness.

Carlos Casanova, the chief economist at UBP, sees similar risks. He said, "The budget deficit will increase in the years ahead, adding to pressures on China's sovereign rating." The Chinese Finance Ministry rejects such concerns, saying the government debt "is controllable."

In terms of the currency, economists predict that the yuan -- also known as renminbi -- will gradually rebound, given the expectation that the U.S. Federal Reserve will start cutting rates next year. The average exchange rate forecast by China economists is 7 yuan per dollar by the end of next year and 6.8 by the end of 2025.

As China's interest rate gap with the U.S. will remain for the time being, Louis Kuijs, S&P Global Ratings' Asia-Pacific chief economist, believes the "pressure on the renminbi from high U.S. rates will likely persist into 2024." However, "when the pressure from U.S. interest rates recedes, we expect the renminbi to appreciate against the greenback." 

Geopolitical risks such as U.S.-China tension continue to weigh on the outlook of the Chinese economy. Chen Dong, head of Asia macroeconomic research at Pictet Wealth, believes that the presidential elections in Taiwan and the U.S. "could both be disruptive." 

"Such risks will likely limit foreign investors' interest in China, both in terms of direct investment and portfolio inflows," he said. 

Demography is another structural issue that affects economists' outlook, as China's population started to decrease beginning in 2022. Bert Burger, the principal economist of Atradius, said the mix of high youth unemployment, aging and an underdeveloped social security system are putting "pressure" on consumer confidence.

Hui Shan, the chief China economist at Goldman Sachs, identified what she called "the 3Ds" as uncertain factors. 

"Demographics, deleveraging and de-risking are likely to slow Chinese economic growth notably in the coming decade," she said. "We expect real GDP growth to slow to only 3% by 2034." 

Additional reporting by Kensaku Ihara.

The economists who responded to the survey:

Arjen van Dijkhuizen, senior economist, ABN AMRO Bank; Ana Boata, head of economic research, Allianz Trade; Bert Burger, principal economist, Atradius; Ricky Choi and Francis Cheng, chief economist and economist, Bank of East Asia; Jian Chang, director and chief China economist, Barclays Asia Pacific; Jacqueline Rong, chief China economist, BNP Paribas; Helen Qiao, head of Asia economics, BofA Global Research; Kenny Ng, securities strategist, Everbright Securities International; Jeremy Zook, director, Asia-Pacific sovereign ratings, Fitch Ratings; Jian Shi Cortesi, investment director, Asia/China growth equities, GAM Investments; Hui Shan, chief China economist, Goldman Sachs; Sophie Altermatt, economist, Julius Baer; Ken Chen, Chinese economy analyst, KGI ASIA; Larry Hu, chief China economist, Macquarie; Ito Hideki, senior economist, Mizuho Bank (China); Katrina Ell, director of economic research, Moody's Analytics; Fan Xiaochen, director of economic research office (Hong Kong), MUFG Bank; Louise Loo, lead China economist, Oxford Economics; Dong Chen, head of Asia macroeconomic research, Pictet Wealth Management; Louis Kuijs, Asia-Pacific chief economist, S&P Global Ratings; Wei Yao and Michelle Lam, chief Asia and China economist and greater China economist, Societe Generale; Tetsuji Sano, chief Asia economist, Sumitomo Mitsui DS Asset Management (Hong Kong); Shuang Ding, chief economist, greater China, and North Asia, Standard Chartered Bank (HK); Carlos Casanova, chief economist, UBP; Wang Tao, head of Asia economics and chief China economist, UBS.

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