BOFIT Forecast for China 2023–2025 / 2

Abstract

China’s economic conditions deteriorated over the summer on sluggish exports, a nosediving real estate sector and an unimpressive pick-up in consumer spending. The government has in recent months announced a number of minor stabilisation measures sufficient to sustain GDP growth of about 5 % in 2023. Economic growth over the medium term, however, will be dampened by structural factors, so we expect growth to slow to 4 % next year and 3 % in 2025. China is dealing with a rapidly ageing population and a shrinking workingage cohort. Moreover, the government has made marginal progress in shifting away from a growth paradigm driven by fixed investment to a consumption-based model. Overall productivity growth remains tepid. China is unlikely to make needed major structural reforms during the forecast period as the leadership remains focused on promoting self-sufficiency, national security and party ideology. The government has limited room for stimulus and traditional forms of stimulus have lost their effectiveness. Geopolitical tensions complicate China’s foreign relations and financial sector risks continue to mount.