China's inflation remained subdued for the second consecutive year in 2024, with headline and core inflation rates at 0.2% and 0.5% respectively. In December 2024, China's Consumer Price Index (CPI) inflation slowed for the fourth straight month to a mere 0.1% year-on-year. Despite these modest inflation figures, expectations for economic growth remain optimistic, with a forecasted acceleration of GDP growth to 5.0% year-on-year in the fourth quarter of 2024, up from 4.6% in the third quarter. The full-year growth projection for 2024 stands at 4.9%, with a slightly more conservative estimate of 4.3% for 2025.
Economists predict continued deflation in the Producer Price Index (PPI), which recorded a second full-year contraction at -2.2% in 2024. The outlook for 2025 maintains expectations of PPI deflation at -1.2%, alongside a CPI inflation forecast of 0.9%. These figures indicate prolonged price stability, albeit at low levels, which may influence the People's Bank of China (PBOC) to implement further monetary policy changes.
“The government’s stimulus has yet to provide a meaningful lift to private consumption and prices. China’s 4Q24 GDP due next Fri (17 Jan) is likely to see nominal growth weighed down by weak prices while we expect the real GDP growth to accelerate to 5.0% y/y (1.9% q/q) from 4.6% y/y (0.9% q/q) in 3Q24 with full-year 2024 growth at 4.9%.” – UOB Group’s Economist Ho Woei Chen
As weak inflation persists, the PBOC is anticipated to cut the Reserve Requirement Ratio (RRR) by 50 to 100 basis points and the benchmark 7-day reverse repo rate by 30 basis points in 2025. Additionally, loan prime rates are expected to decrease by 30 basis points, aiming to stimulate economic activity by lowering borrowing costs.
“China’s inflation has remained subdued for the second straight year in 2024 with the headline and core inflation at 0.2% (2023: 0.2%) and 0.5% (2023: 0.7%) respectively. China’s PPI recorded its second full year contraction at -2.2% in 2024 (2023: -3.0%). We maintain our forecast for 2025 CPI inflation at 0.9% and PPI deflation at -1.2%.” – UOB Group’s Economist Ho Woei Chen
The global financial markets have been responding to these economic indicators from China, with the EUR/USD pair experiencing mild losses for three consecutive days, trading around 1.0300. Similarly, the GBP/USD pair has accelerated its decline, reaching its lowest level in over a year near 1.2250. In the cryptocurrency market, Binance Coin (BNB) price hovers around $696.40 after a decline of 4.58% over two days.
“We maintain our 2025 GDP growth forecast at 4.3%. Thus, we expect an additional 50-100 bps reduction to the RRR and 30 bps cut to the benchmark 7-day reverse repo rate (with loan prime rates to fall by 30 bps) in 2025. A near-term RRR cut will be in focus after the PBOC skipped a cut in Dec which it had flagged earlier.” – UOB Group’s Economist Ho Woei Chen