China’s economic outlook is facing a significant downturn, with the World Bank projecting a decrease in growth to 4.3 per cent for 2025. This marks a decline from the previously estimated 4.8 per cent, as outlined in a recent economic update released on Tuesday.
While this figure represents a slight increase of 0.3 per cent compared to earlier forecasts made in April, it underscores the ongoing uncertainty surrounding the effectiveness of Beijing’s recent stimulus measures according to a detailed report by CNBC.
Temporary boost from stimulus measures
The World Bank’s report highlights that although there has been a temporary uplift in investor sentiment following the rollout of various economic measures by the Chinese government, this boost is not expected to translate into sustained growth. Aaditya Mattoo, the World Bank’s chief economist for East Asia and the Pacific, expressed concerns during an interview with CNBC’s ‘Street Signs Asia’. He pointed out that the real challenge lies in whether these stimulus efforts can alleviate consumer anxieties related to stagnant wages and diminishing property revenues.
Mattoo elaborated on the current consumer landscape in China, indicating that fears surrounding health, aging, and unemployment continue to dampen spending. The lack of robust consumer expenditure is a critical factor contributing to the forecasted slowdown. Furthermore, ongoing challenges such as weak property markets and an aging demographic are compounding these issues.
Stimulus focused on supply rather than demand
James, head of Asia-Pacific research at JPMorgan, echoed Mattoo’s sentiments regarding the nature of the stimulus initiatives. He noted that the focus appears to be predominantly on enhancing supply and investment rather than addressing consumer demand directly.
“The million-dollar question in China right now is whether the stimulus will primarily enhance the supply side or ultimately translate into increased consumer demand,” he remarked. Currently, analysts do not anticipate a significant shift towards bolstering consumer spending as a result of these measures.
To foster sustainable economic growth, the World Bank has consistently advocated for more assertive policy measures from China. These include fostering competition, improving infrastructure, and reforming the education system. However, Mattoo cautioned that while recent stimulus efforts may provide short-term relief, they cannot replace essential structural reforms necessary for long-term economic stability.
Regional implications of China’s slowdown
The implications of China’s economic deceleration extend beyond its borders. The World Bank forecasts that other countries in East Asia and the Pacific will experience growth of 4.7 per cent this year, with an anticipated rise to 4.9 per cent next year. This growth is expected to be driven by a recovery in exports and improved financial conditions across the region.
However, as China’s economy slows down, it becomes increasingly vital for neighbouring countries to cultivate additional domestic growth drivers. The dependence and relation of these economies with each other means that any downturn in China could have ripple effects throughout East Asia and beyond.
Therefore, while recent stimulus measures have provided a temporary boost to China’s economy, significant challenges remain that could hinder sustainable growth moving forward. The focus must shift towards addressing consumer concerns and implementing structural reforms if China aims to maintain its role as a key driver of regional economic performance.