Investing.com — Forecasting China’s Economic Trajectory

Forecasting China’s economic trajectory is never straightforward, but ING analysts laid out ten pivotal questions to watch in 2025.

These questions span growth targets, policy effectiveness, market stability, and broader economic trends.

Growth Targets: A Bellwether for Policy Intentions

The growth target set at China's annual Two Sessions will be critical, according to ING.

ING outlines three scenarios:
– a baseline of "around 5%" or "above 4.5%," signaling steady confidence;
– a bear case of "around 4.5%" or lower, indicating caution;
– a bull case "above 5%," requiring bold policy moves.

ING says that meeting a higher target would likely catalyze market growth, though such ambition necessitates significant fiscal and monetary push.

Monetary and Fiscal Strategies

After an active 2024, the People's Bank of China (PBoC) is expected to continue easing measures, with ING forecasting 20-30 basis points of rate cuts and further reductions in reserve requirements.

However, ING notes that fiscal policy has underwhelmed, hindered by local government debt. They believe the RMB 10 trillion fiscal package announced for 2025 could signal a stronger commitment, focusing on infrastructure and green projects.

“We expect fixed asset investment growth will see a modest pick up next year from the current 3.4% to around 5%, with government-led investment still likely to lead private sector investment,” said ING. “Overall, we think fiscal policy will be one of the keys to growth stability next year, but the scale, pace, and efficacy of this rollout represent significant uncertainty to our outlook.”

Real Estate and Consumption Recovery

ING believes the property market, a major drag on growth this year, may bottom out in 2025, with the recovery likely L-shaped.

Stabilizing property prices is seen as key to restoring consumer confidence, which has been battered by slow wage growth and a negative wealth effect.

ING states that weak consumption has also negatively impacted growth: “Overall, we are looking for retail sales to rebound to around 4.5% YoY in 2025, with the potential for higher growth if we get stronger-than-expected policy support.”

Exports, Inflation, and Currency Dynamics

Exports, buoyant in 2024, may face headwinds from potential U.S. tariffs. Meanwhile, inflation is expected to rise slightly to 0.9% year-on-year, and the yuan’s stability could be tested by external pressures, ING suggests.

ING notes, “We are expecting inflation to remain low but trend a little higher in 2025. Food inflation will likely be the main driver in the early months of 2025, but non-food inflation should gradually recover as supportive policies take effect.”

Bonds and Excessive Pessimism

When it comes to the bond market, ING says it has been one of the few assets to outperform in recent years, though it has also sparked controversy.

ING highlights a downbeat discourse on China over the past few years, both domestically and abroad, amid numerous significant challenges. However, they believe that the environment has now tipped into excessive pessimism.