Chinese economic growth expected to slow further in 2024–2026

“Structural and cyclical factors continued to drag down Chinese growth this year,” notes BOFIT senior economist Juuso Kaaresvirta. “Even though officials are introducing support measures to strengthen the economy and correct economic distortions, these actions by themselves do not seem to be enough to halt the slowdown in economic growth.”

China’s era of high growth fading

Chinese economic growth has slowed this year. According to government figures, on-year GDP growth was 5.3 percent in the first quarter, 4.7 percent in the second quarter and 4.6 percent in the third quarter. BOFIT’s alternative calculation of Chinese GDP further suggests real growth might have been even considerably lower. We expect GDP growth the be around 4 percent this year. With the effects from recently launched stimulus measures kicking in next year, GDP growth should still remain at around 3½ percent next year, and then slow to around 3 percent in 2026, which is a level of growth in line with China’s long-term potential growth rate.

The moderation of economic growth is due above all to structural factors such as the shrinking pool of working-age people, China’s slow transition away from an investment-driven growth model to a modern consumption-driven model, inefficient use of resources, an opaque policy environment and weak total output gains. Branch-specific differences are likely to persist during the forecast period, with certain branches experiencing high growth and others contracting. In any case, 3-percent economic growth is a respectable figure for the world’s largest upper-middle-income nation, and on par with global growth.

China’s economic outlook could brighten if the country moves ahead quickly with economic reforms. Although aggressive fiscal stimulus would boost short-term growth, it would also increase pressure to deal with general government imbalances over the medium term. Economic growth could be impeded if actual state of the financial sector is weaker than assumed in our forecast.

The forecast document is available at https://www.bofit.fi/en/forecasting/latest-forecast-for-china

BOFIT will hold a China briefing (in Finnish) on the forecast on November 4, 2024, starting at 13.00 EEST. A video upload of the event will be posted on the Bank of Finland’s YouTube channel.

 

For further information:

Juuso Kaaresvirta, Senior Economist, p. +358 9 183 2107, juuso.kaaresvirta@bof.fi

Iikka Korhonen, Head of Research, p. +358 9 183 2272, iikka.korhonen@bof.fi