Has China’s economy lost its lustre?
January 2024
All eyes are on China’s economy in Year of the Dragon as the potential for a slowdown in growth could affect financial markets everywhere. The good news for Australian investors is the local impact may be minimal.
A temperature check of China’s economy shows it has been more sluggish than expected since mid-2023 after reopening with a bang following COVID-19. Its growth is likely to reach 4.5% this year, underpinned by government spending coupled with an uptick in consumer spending1.
Potential ructions in its property market are a wildcard that could derail this forecast. Most Chinese household wealth is tied up in real estate and any decline in property values has a big impact on general consumer confidence.
Chinese property developers are under stress as demand for new homes remains depressed and they are heavily indebted. Recently unveiled measures to support the housing market are likely to only have modest effects on bolstering economic growth.
There is much debate about whether the Chinese government needs new policies to stimulate the economy and overcome the challenges it faces. That seems unlikely in the near term unless the economy slows further and unemployment rises.
So, what is the takeout for Australians? There is a silver lining in that China’s expected growth will be driven by factors that support Australia’s own economy. These include Chinese government spending in areas like infrastructure which rely on the resources that are among Australia’s largest exports. If large numbers of buildings and bridges are built in China, then demand for Australian iron ore and copper should surge.
Wealthy Chinese tourists to Australia will also likely return closer to the record levels prior to the pandemic and immigration may resume too. Both would generate spending in the Australian economy that supports local jobs and growth.
Much remains to be seen – but all signs are that China’s economy won’t feature highly in the list of concerns for Australians in 2024.
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1 Source: Russell Investments’ 2024 Annual Global Market Outlook
Past performance is not a reliable indicator of future performance.
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