China's Economic Outlook for 2025
China is bracing for another challenging year as it navigates a sluggish economy marked by low consumer confidence and external pressures. A recent report by The Economist highlights the need for decisive actions to stimulate domestic demand amidst a backdrop of potential US tariffs that could severely impact economic growth. The report follows the Central Economic Work Conference, where officials acknowledged the deepening economic slowdown and the necessity for bold reforms.
Consumer Spending and Retail Sales
In November 2024, retail sales in China increased by only 3% year-on-year, with inflation remaining low at 0.2%. These figures indicate a persistent hesitation among consumers, who have yet to regain their confidence following the disruptions caused by the Covid-19 pandemic in 2022. The looming threat of additional tariffs from US President-elect Donald Trump could further exacerbate the situation, with Citigroup estimating a potential reduction of 2.4 percentage points in China's growth rate due to these measures.
Government Stimulus Measures
Despite previous attempts at stimulating the economy through interest rate cuts and relaxed bank reserve requirements, demand for credit has not improved significantly. The government's efforts to support the property market, including a substantial 300 billion yuan ($42 billion) in discounted loans, have seen limited uptake, with only 15% utilized by the end of November. However, recent policy shifts indicate a renewed focus on boosting domestic consumption. The Ministry of Finance has announced plans to issue an additional 10 trillion yuan ($1.4 trillion) in bonds to alleviate costs for local governments, with expectations of about 1.2 trillion yuan ($168 billion) allocated to support economic growth in 2025. Measures to stimulate consumption have yielded some positive outcomes, particularly in the real estate sector, where new residential property sales saw an uptick for the first time in three years.
