The Chinese economy expanded by 5% in 2024, precisely in line with the government’s target of “around 5%”. This number appears surprisingly high, considering China’s deflationary environment and the economy’s existing imbalances.

China’s GDP grew by 5% in 2024, accelerating in Q4 with growth of 5.4%, compared with 4.6% in Q3, 4.7% in Q2, and 5.3% in Q1. Last year’s growth somewhat benefited from the September stimulus package but still seems high considering the imbalanced economy.

China’s domestic consumption based on retail sales rose by only 3.5% y-o-y in 2024 versus 7.2% in 2023. Furthermore, the property market remains weak, falling by 7.5% y-o-y in December 2024, marking the 18th consecutive month of decreases, although it was the softest fall since August. The weak construction market is evidenced by rebar production of only 179Mt from January to November, a 14.3% y-o-y decline. Another indication of China’s weak domestic consumption is its imports, which increased by a mere 1.1% to US$2.6Tn.

China has mitigated its weak domestic economy by increasing its manufacturing exports, which rose 5.9% to US$3.58Tn for the year, bringing China’s trade surplus to a record high of US$992Bn. Exports surged by 10.7% y-o-y in December, marking the 9th consecutive month of shipment growth and the largest value observed in three years as some manufacturers front-loaded orders in anticipation of further US tariffs. In 2024, the greatest export growth came from ASEAN (12.0%) and Latin America (13.0%), with export growth to the USA (4.9%), EU (3.0%), the UK (1.2%), and Japan (-3.5%) remaining limited.

China’s value-added industrial output rose by 5.8% y-o-y in 2024, accelerating from the 4.6% growth recorded in 2023. In December alone, industrial output grew by 6.2% y-o-y. Full-year fixed asset investment rose by a modest 3.2% in 2024, while real estate investment dropped by 10.6% y-o-y based on the first 11 months of 2024.

One of the main concerns about the Chinese economy remains its very low inflation. CPI growth is estimated at 0.2% for 2024, while the PPI dropped by 2.2% y-o-y. The Chinese economy appears very close to a deflationary level, suggesting a significant output gap, as an economy is seen running at potential when starting to generate inflation. This makes China’s 5% GDP growth appear high and possibly overstated.

The outlook for 2025 appears uncertain, to say the least. The arrival of Donald Trump at the White House and his threats of high tariffs on Chinese exports will deprive China of a main source of growth unless the Chinese government decides to launch an aggressive stimulus programme based on fiscal and not solely on monetary measures, something that Project Blue does not consider as a base case. Additionally, any fiscal package should be accompanied by structural reforms, including pensions and social security, measures necessary to boost the long-term consumption of an ageing population.

We forecast that China will maintain a loose monetary policy in 2025 with a low Yuan and try to diversify its export markets as much as possible. A possible upside could come from the stabilisation of the property market, but overall, Project Blue forecasts GDP growth to drop to 4.5% in 2025, with downside risks, but primarily with a very high level of uncertainty.