Analyst lists key questions for China in 2025

Investing.com -- Forecasting China’s economic trajectory is never straightforward, but ING analysts laid out ten pivotal questions to watch in 2025. 

These questions span growth targets, policy effectiveness, market stability, and broader economic trends.

Growth Targets: A Bellwether for Policy Intentions
The growth target set at China's annual Two Sessions will be critical, according to the firm. 

ING outlines three scenarios: a baseline of "around 5%" or "above 4.5%," signaling steady confidence; a bear case of "around 4.5%" or lower, indicating caution; and a bull case "above 5%," requiring bold policy moves. 

ING says that meeting a higher target would likely catalyze market growth, though such ambition necessitates significant fiscal and monetary push.

Monetary and Fiscal Strategies
After an active 2024, the People's Bank of China (PBoC) is expected to continue easing measures, with ING forecasting 20-30 basis points of rate cuts and further reductions in reserve requirements. 

They note that fiscal policy, however, has underwhelmed, hindered by local government debt. ING believes the RMB 10 trillion fiscal package announced for 2025 could signal a stronger commitment, focusing on infrastructure and green projects.

“We expect fixed asset investment growth will see a modest pick up next year from the current 3.4% to around 5%, with government-led investment still likely to lead private sector investment,” said ING. “Overall, we think fiscal policy will be one of the keys to growth stability next year, but the scale, pace, and efficacy of this rollout represent significant uncertainty to our outlook.”

Real Estate and Consumption Recovery
ING believes the property market, a major drag on growth this year, may bottom out in 2025, with the recovery likely L-shaped.

Stabilizing property prices is seen as key to restoring consumer confidence, which has been battered by slow wage growth and a negative wealth effect.

The other big drag on growth has been weak consumption, notes ING, stating: “Overall, we are looking for retail sales to rebound to around 4.5% YoY in 2025, with the potential for higher growth if we get stronger-than-expected policy support.”

Exports, Inflation, and Currency Dynamics
Exports, buoyant in 2024, may face headwinds from potential U.S. tariffs. Meanwhile, inflation is expected to rise slightly to 0.9% year-on-year, and the yuan’s stability could be tested by external pressures, ING suggests.

“We are expecting inflation to remain low but trend a little higher in 2025,” states ING. “Food inflation will likely be the main driver in the early months of 2025, but non-food inflation should gradually recover as supportive policies take effect.”

Bonds and Excessive Pessimism
When it comes to the bond market, ING says it has been one of the few assets to outperform in the last few years, but it has also sparked a lot of controversy throughout the year.

Meanwhile, “the discourse on China has been quite downbeat over the past few years both domestically and abroad,” with ING highlighting numerous significant challenges. However, they “feel that the environment has since tipped into excessive pessimism.”