As we step into 2024, China finds itself at a pivotal point in its economic recovery, following the lifting of its zero-COVID policy. Despite high hopes, the recovery over the past year has not been as robust as anticipated, sparking increased interest in the economic outlook for 2024. The forecast for China presents a mixed picture, characterized by a slow yet steady recovery from the COVID-19 pandemic.
Mixed Signals from Purchasing Managers' Indexes
A key indicator of China's economic health is the Purchasing Managers' Index (PMI) for the manufacturing sector. This index sheds light on the country's economic activities, from social financing and freight volume to employment trends and the business climate in the real estate sector, as well as important financial indicators such as interest rates and commodity exchange conditions.
The official PMI dropped to 49.1 in February (down from 49.2 in January), marking the fifth consecutive month the index has been below 50, indicating a contraction in the sector. In contrast, the Caixin PMI for manufacturing rose to 50.9 in February (up from 50.8 in January), the fourth consecutive monthly increase for the index.
Growth and Debt
For 2024, the International Monetary Fund (IMF) forecasts a slowed growth rate of 4.6%, still above earlier expectations. Despite these positive signs, the economic outlook is fraught with challenges, including ongoing weaknesses in the real estate sector and subdued external demand.
China's local debt has risen to 92 trillion Yuan, accounting for 76% of the country's economic output in 2022. This increasing debt poses a long-term obstacle to growth. To support growth and accelerate economic recovery, China has implemented several measures to bolster the real estate market, but further efforts are needed to secure a faster recovery and reduce economic costs.
Overall, China faces a range of structural challenges, including high debt levels, an aging population, and slower productivity growth than in the past. These factors are expected to limit China's growth potential in the long term. Despite these challenges, the outlook for 2024 indicates that China's economy still has growth potential, albeit at a slower pace than in the past.
Conclusion
In summary, while challenges persist, a combination of policy support and structural reforms suggests that China is on a path to moderate growth, supported by measures to strengthen the real estate sector and address local debt. China's adaptability and policy measures will be crucial in driving economic recovery and securing long-term growth potentials.
Sources: Macrobond, Reuters, IMF, Weltbank
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