World Bank Upgrades China’s Growth Outlook for 2024 and 2025
In a recent update, the World Bank raised its economic growth forecast for China in 2024 and 2025, but the outlook remains cautious. While the global lender sees some improvement, it also pointed to ongoing challenges such as weak consumer and business confidence and struggles in the property sector.
This news comes as China grapples with slower-than-expected economic recovery, largely driven by a property crisis and sluggish domestic demand. Despite these hurdles, the World Bank believes China’s economy will make some progress in the next two years.
Let’s dive into what this means for China’s economic future and what the World Bank had to say about the country’s growth prospects.
Economic Growth Forecasts: A Modest Rebound
The World Bank has raised its China GDP growth forecast for 2024 to 4.9%, slightly higher than the 4.8% it predicted back in June. For 2025, the forecast is now 4.5%, up from 4.1%, signaling a recovery, though slower than in previous years.
The boost in China’s growth forecast is thanks to recent policy measures and stronger-than-expected exports in the short term. However, the bank remains cautious, highlighting several significant factors that could limit China’s ability to fully recover.
Key Points:
- 2024 GDP Growth: Raised to 4.9% (from 4.8%).
- 2025 GDP Growth: Increased to 4.5% (from 4.1%).
- Challenges Ahead: Weak domestic demand, a struggling property sector, and low consumer confidence.
While China’s official growth target for 2024 is around 5%, the World Bank’s outlook suggests a more moderate rebound. But despite the positive revisions, the challenges the country faces are far from over.
Why China’s Recovery is Still Fragile
Despite some positive economic signals, the World Bank pointed out that China is still battling several serious obstacles that could hinder sustained growth.
1. Weak Household and Business Confidence
One of the biggest issues China faces is low confidence among both households and businesses. Household income growth has slowed, and many people remain cautious about spending, especially as property prices continue to fall. This “negative wealth effect” — when people feel poorer due to the devaluation of assets like homes — is expected to weigh heavily on consumer spending into 2025.
2. Struggling Property Market
The property sector remains a significant drag on China’s economy. After years of rapid expansion, the market has now come to a standstill, with many developers in financial distress and housing prices falling in several cities. The government has taken some steps to stabilize the market, but the World Bank does not expect a full recovery until late 2025, if at all.
China’s housing market is crucial because it has been a key driver of economic growth in the past. The slowdown here is causing ripple effects throughout other industries, especially in construction and related sectors like home appliances and furniture.
3. Structural Reforms Needed
The World Bank also stressed the need for long-term structural reforms in China’s economy. In particular, strengthening the country’s social safety nets, improving the financial health of local governments, and addressing challenges in the property sector are all critical to unlocking a sustained economic recovery.
Mara Warwick, the World Bank’s Country Director for China, highlighted that balancing short-term growth support with long-term reforms is essential for ensuring stability in China’s economy.
Policy Measures: What China is Doing to Boost Growth
To address these challenges, the Chinese government has taken several steps to stimulate the economy. The most notable of these is an ambitious 3 trillion yuan ($411 billion) in special treasury bonds, which will be issued next year to support economic recovery. This record issuance of bonds is intended to provide extra liquidity and funding to local governments and other key sectors.
Additionally, the government has continued to implement policy easing measures, such as lowering interest rates and cutting taxes, in a bid to stimulate demand and boost business confidence.
However, despite these efforts, the World Bank remains cautious, noting that any recovery will likely be slow and uneven. As they put it, addressing the fundamental issues in sectors like property and social safety nets will take time and effort.
The Role of Exports in China’s Growth
One bright spot in China’s economy is exports, which have shown resilience despite global challenges. The World Bank noted that export strength in the short term has helped lift growth projections for 2024.
However, there is uncertainty in the global trade landscape. The U.S.-China trade war, which saw significant tariffs imposed on Chinese goods, is still a looming concern, particularly as new tariffs might be introduced under President-elect Donald Trump’s administration. These tariffs could slow growth further, especially if U.S. trade relations become more strained.
China’s Middle Class: Expanding but Economically Insecure
China’s middle class has expanded significantly in recent years, making up around 32% of the population in 2021. However, despite this growth, the World Bank estimates that 55% of China’s population remains economically insecure. This suggests that while many people are moving up the economic ladder, a large portion of the population still faces challenges in terms of income security and long-term financial stability.
In this context, the World Bank emphasized the importance of generating new opportunities for the middle class to thrive, especially as the country shifts away from traditional manufacturing and export-led growth.
Looking Ahead: Can China Sustain Growth?
The road to recovery for China remains uncertain. While the World Bank’s updated growth forecast offers some hope, the country faces multiple headwinds, including a struggling property sector, low consumer confidence, and the potential for further economic disruptions due to global trade tensions.
However, China’s government is taking steps to address these challenges, with significant investments in infrastructure, social welfare, and policy reforms. The property market, in particular, will likely be a key area of focus in the coming years, as the government works to stabilize it and prevent further economic slowdown.
As China’s GDP continues to grow at a slower pace, it will be essential for the country to balance short-term stimulus with long-term structural reforms to ensure sustainable and inclusive growth for the future.
Conclusion: Mixed Optimism for China’s Economic Future
The World Bank’s revised forecast for China’s economic growth is a positive sign, but it also highlights that the country still faces significant challenges. Slower growth in the next few years, especially in 2025, will likely be influenced by ongoing difficulties in the property market, sluggish consumer spending, and global trade uncertainties.
The Chinese government’s efforts to stimulate growth through bond issuances and reforms may help, but much work remains to be done. For China to achieve a full recovery, it will need to tackle both short-term challenges and long-term structural issues head-on.
I am Aparna Sahu
Investment Specialist and Financial Writer
With 2 years of experience in the financial sector, Aparna brings a wealth of knowledge and insight to Investor Welcome. As an accomplished author and investment specialist, Aparna has a passion for demystifying complex financial concepts and empowering investors with actionable strategies. She has been featured in relevant publications, if any, and is dedicated to providing clear, evidence-based analysis that helps clients make informed investment decisions. Aparna holds a relevant degree or certification and is committed to staying ahead of market trends to deliver the most up-to-date advice.