Financial expert analyzes: China's economy in transition - what does that mean for investors?

Financial expert analyzes: China's economy in transition - what does that mean for investors?

According to a report by www.tagesschau.de,
China's economy is hit by an ongoing real estate crisis and subdued external demand. The International Monetary Fund (IMF) expects lower growth of 4.6 percent in 2024 compared to 5.4 percent in the previous year. After the zero-corona policy was ended, the economy of the second largest economy recovered. However, the ongoing adjustment in the real estate market continues to weigh on private investment and consumer confidence. The real estate sector in particular is an important pillar of growth, and the dissolution of the heavily indebted real estate group China Evergrande brings additional challenges.

The IMF predicts ever weaker growth in the coming years. In 2028, the fund expects growth of just 3.4 percent, and inflation is also expected to rise. The risks with regard to the economic outlook are great, and an unexpected, sharp contraction in the real estate sector could further weigh on private demand. The IMF emphasizes that “market-friendly structural reforms” are needed to reduce economic risks. Additional funding would need to be made available to complete housing and the government would need to help developers adapt to a smaller property market. Greater market-based price adjustment and the reduction of trade restrictions are also of great importance.

These developments in the Chinese economy could have far-reaching implications for the global market and financial industry. The lower growth forecasts and uncertainty in the real estate sector could lead to a more cautious investment strategy and put a strain on international trade relations. The financial industry will need to prepare for possible impacts on markets and develop alternative strategies to deal with the new economic realities.