Growth momentum remains moderate, but 5% growth still achievable

August 30, 2024

China’s economy is likely to achieve its official growth target of “around 5%” in 2024, largely thanks to commitments from China’s top leadership to intensify fiscal support and monetary easing as needed. On the demand side, periodic releases of pent-up demand during holidays and online shopping festivals will provide some support. But unless the structural imbalances weighing on growth are addressed, the sustainability of China’s economy is at risk. Given China’s current economic conditions and policy trends, we expect the market to continue being characterized by weak spending and price-based competition leading to downward pressures on profits.

Trusted Insights for What’s Ahead™

• Status of China’s Economy: Despite weaker economic momentum, government support keeps the 5% growth within reach
  July data showed persistent weakness in the property sector and consumer confidence. Despite an improvement in retail sales, overall household demand is still weak, and this is weighing on industrial production. With growth at 5.0% in H1, and given our expectations for increasing government support in the coming months, our forecast for real GDP growth in 2024 remains at 5.0%.
• Investment Trends: Manufacturing investment remains robust, while infrastructure investment moderates and property investment contracts
  Fixed asset investment (FAI) declined to 3.6% y-o-y in Jan-Jul, down from 3.9% in H1, due to a further contraction in property investment and a moderation in infrastructure investment; the main contributor to FAI is still manufacturing investment (9.3% in Jan-Jul). Infrastructure and manufacturing investment are expected to pick up speed in Q4 2024, and by extension support sales to companies in infrastructure, construction, machinery, and their extended value chains.
• Consumption Trends: Weak consumer confidence leaves a modest outlook for consumption
  Retail sales growth inched up from 2.0% in June to 2.7% in July, thanks to the summer peak season for travel and entertainment. However, we believe Chinese consumers will overall remain risk-averse and price-sensitive as long as the underlying factors dragging down confidence levels are not addressed. While MNCs in hospitality and travel-related industries will benefit from sporadic releases of pent-up demand, MNCs overall should be prepared for continued weakness in consumption.
• Trade Trends: Chinese export growth slows amid weakening external demand 
  Export growth slowed to 7.0% y-o-y in July, down from 8.6% in June. This was driven by a loss in global economic momentum and exacerbated by China’s announcement this month of an anti-dumping investigation into dairy imported from the EU. Looking ahead, softening external demand and escalating trade tensions will weigh on China’s export outlook through H2 2024.