China’s economic growth will further accelerate in 2024

Earlier this year, China was a key reason for relatively modest global growth forecasts for 2024. After nearly three years of shaky growth and unexpected headwinds from China, negative rhetoric from investors and analysts began to intensify, dominating the country’s agenda. In fact, Bloomberg’s consensus forecast for China’s 2024 economic growth is weak at 4.5%, significantly lower than last year’s 5.2% and the 10-year long-term average of 6.2%.

However, a combination of positive data and strong government stimulus in recent months has called into question the doomsday narrative for China, leading to a sharp upward revision of the country’s growth forecasts for the year so far.

Bloomberg consensus on China’s growth in 2024
(Median forecast over time to 2024)Source: Bloomberg, QNB analysis

After recent rounds of GDP growth revisions and upward revisions, can China’s economic growth pick up further this year? Has all the good news been thrown away? Can the country maintain this momentum for longer?
We believe that China’s growth forecast for this year can still be revised upward as the strengthening momentum and improved overall sentiment could lead to above-target growth of 5%. Three main factors support our view.

First, the data has surprised to the upside, and there are signs that the positive momentum could continue for some time, leading to further upward revisions to growth forecasts.

China’s economy grew 5.3% year-on-year in the first quarter of 2024, far exceeding analysts’ forecasts of 4.8%. Moreover, China’s wave of surprising negative economic data appears to have run out of steam in September 2023 and January 2024, suggesting that some of the pessimism has produced positive surprises.

This is reflected in the recent movement of the Citi China Economic Surprise Index, which measures the speed at which economic indicators are beating or falling short of consensus forecasts in a timely manner. For the first time in more than nine months, the data produced mostly positive surprises in more than two months. This type of development tends to indicate that forecasts are still too conservative and should start to be revised upwards in the coming months…

Citi China Economic Surprise Index
(Index points, September 2023-2024) Source: Bloomberg, QNB analysis

Second, the Chinese government has decided to step up its stimulus policy and take more aggressive measures to support the economy. In recent quarters, policy actions have included several rounds of interest rate cuts, liquidity injections and tax spending on infrastructure projects. There are also more than 100 new measures aimed at supporting the private economy, consumer spending and foreign direct investment. In addition, and perhaps most importantly, the government has also addressed the difficulties encountered by the real estate sector in recent weeks, which has seen developers go bankrupt and close down, and a mountain of built but unsold properties pile up. As part of a series of different measures, the real estate sector will receive financial assistance to developers, looser mortgage rules, and at least $42 billion in central bank funds to help government-backed companies buy excess inventory. Regional developers are also encouraged to use part of a $539 billion bond quota to buy unsold homes and distribute them to low-income residents.

Stock and bond markets have reacted very positively to these measures, a move that suggests a significant shift in investor confidence. This is one of the missing ingredients for a stronger economic response to stimulus, which should further support growth going forward.

Finally, the manufacturing sector should further support growth in China in the coming months. After an unusually deep and prolonged “global manufacturing recession” that has persisted since 2022, a positive shift toward an expansionary cycle is expected. The global manufacturing PMI (Purchasing Managers Index), a timely indicator of improvement or deterioration in economic activity, reached its lowest level in July last year and has since improved. The latest data for April 2024 suggests that the expansion will last for three months. Expansionary cycles in manufacturing activity usually gain momentum quickly and last for about a year and a half. This should support China, as manufacturing accounts for 25-30% of China’s GDP.

Overall, we think there is still room for further positive surprises and revisions in Chinese GDP growth, and the authorities can easily achieve above-target performance (5% GDP growth in 2024). This depends on the continuation of positive data, more aggressive recovery policies and the start of a global manufacturing recovery.