BBVA – China Economic Outlook, 2Q 2024

The Chinese economy has experienced a soft landing with unexpected growth and a halt in the downward trend of inflation, mainly due to a dynamic service sector. Fiscal policy has counteracted the impact of monetary tightening, reducing the possibility of central banks lowering interest rates. Despite this, financial volatility remains low. Future growth is predicted to weaken in the coming quarters before a slight recovery in 2025. The US and Eurozone are also expected to experience economic shifts, with the US anticipating weaker demand and labor markets, and the Eurozone showing signs of a cyclical recovery. In China, structural challenges may lead to a decline in growth, despite positive data and increased stimulus efforts. Interest rate cuts have been initiated by the European Central Bank, but the Federal Reserve is expected to delay easing measures. Potential risks to inflation and limited room for lowering interest rates remain, particularly if there are unexpected manufacturing recoveries or geopolitical supply shocks impacting the global economy.