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4 reasons why the current slowdown will continue

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  • China has yet to experience an economic rebound like before the pandemic, and this will likely remain true in 2024.
  • The Conference Board projects that GDP growth will slow to 4.1% in 2024, compared to an estimated 5.2% in 2023.
  • Economists have outlined four reasons why China’s economy will continue to struggle next year.

China’s economy has yet to fully rebound from the strict lockdowns imposed by the pandemic. And according to the Conference Board’s China Center for Economics and Business, the struggle for growth will continue until 2024.

What looked like a demand-fueled rebound in the first quarter of 2023 then collapsed as debt-laden real estate giants like Evergrande and Country Garden struggled, aging populations and soaring youth unemployment took a toll. weakened the labor market and the country fell into deflation.

Slowing domestic and foreign demand for Chinese goods, a deteriorating labor market and eroding corporate profits, partly due to low inflation, also weighed on second-quarter growth. GDP expansion stood at 0.5% on a quarterly basis, compared to 2.3%.

Then, in the third quarter, growth offered another false impression by increasing. And although the Trust Council expects this upward trend to persist until the end of the year, it believes it is not sustainable and risks giving way to a further slowdown in 2024.

The Trust Council projects GDP growth of 4.1% for the full year, down from the 5.2% currently estimated for 2023. Here are four key reasons why they see China facing below-trend growth in 2024 that could continue for years.

1. Pent-up demand will decrease

Although China saw a considerable increase in consumption in the third quarter, this was due to pent-up demand, which the Conference Board expects to decline in the coming months.

“Confidence remains low and there are currently no observable developments that could lead to a change in sentiment,” the economists wrote in a report shared with Business Insider.

They say consumption has not yet recovered sustainably and Chinese citizens remain concerned about their financial security and the job market, as well as Beijing’s policies that discourage spending and encourage precautionary saving.

2. The real estate crisis is not going to disappear

Major Chinese real estate developers have defaulted or declared bankruptcy this year, and authorities’ attempts to stabilize the real estate sector have had no significant impact.

“The slowdown is structural and likely permanent,” the Conference Board said. “Chinese households have lost confidence in real estate as a channel for wealth accumulation. It is difficult to predict when the sector will stabilize; but when it does, it will not again become as important an engine of growth as in previous decades. “

Economists say the real estate sector has not yet reached its low point and Beijing will struggle to revitalize demand.

3. Foreign demand for Chinese products is about to slow

A global economic slowdown, caused by recessions in the United States and Europe, is bad news for China.

Demand for China’s manufacturing exports will continue to moderate amid a global slowdown in the new year, the Conference Board said.

“China will not be able to export to escape the global demand problem caused by the slowdown in real estate,” note the economists.

4. Beijing cannot implement major stimulus measures, only incremental ones

With China’s economy facing deep-rooted structural problems, any reform or massive stimulus package opens the door to disaster, according to the Conference Board.

There is some room to stimulate credit growth and investment, but the greater the intervention, the greater the chance of triggering more economic inefficiencies and speculative investment.

“So far, the government has refrained from implementing a large-scale recovery plan,” the economists said. “Yet in recent months, the government has stepped up monetary and fiscal measures to boost “targeted” investments, particularly in flood recovery and disaster prevention infrastructure. As a result, even if the strong recovery observed in the third quarter of 2023 will dissipate, growth in 2024 is expected to remain stable. »

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