Eco Pulse

China | A reassuring but lacklustre start to the year

03/18/2025
PDF

Slight improvement in business climate.

Manufacturing PMIs rebounded in February, returning to their average level of Q4 2024 (50.2 for the NBS index and 50.8 for the Caixin index). In services, the PMIs remain below their Q4 level but are above the expansion threshold (50 for the NBS index and 51.4 for the Caixin index). The latest activity data confirm this reassuring but rather lacklustre performance: growth in industrial production slowed in January-February after accelerating in December, but held steady at almost 6% y/y. The slowdown in growth in production in services was more marked (+5.6% y/y in January-February, vs. +6.3% in Q4).

Households are still hesitant.

The consumer confidence index recovered slightly in January-February. Consumers' concerns remain strong, however, as a result of the prolonged property crisis and degraded labour market conditions; they are a major brake on strengthening domestic demand and a challenge for the authorities. Yet, retail sales growth continued to accelerate slowly in January-February (+4% y/y in value terms, vs. +3.6% in Q4), notably thanks to the government-subsidised consumer goods trade-in programme.

Deterioration of the labour market.

The unemployment rate rose again in January-February. While this is partly due to the Chinese New Year holiday period, the unemployment rate is at its highest level for two years (5.4%, vs. 5.1% at the end of 2024).

Deflation.

The CPI index contracted by -0.1% y/y on average over the first two months of 2025 (after +0.2% in Q4). This decline is partly due to price volatility over the New Year period, but above all reveals the persistence of deflationary pressures. In January-February, food prices fell again (-1.5% y/y) after rising for two quarters, and core inflation eased very slightly (to +0.25%). The producer price index, which fell in 2023 and 2024, continued to fall (-2.3%).

Downside risks to economic growth.

Given the limited recovery in household demand and the expected slowdown in exports, real GDP growth could slow more than expected in Q1. Thereafter, monetary and fiscal stimulus should gain further momentum, as the growth target has been set at about 5% for 2025. Beijing has just announced that a plan would be implemented to boost household income growth and consumption.

Article completed on 17/03/2025

THE ECONOMISTS WHO PARTICIPATED IN THIS ARTICLE

Other articles from the same publication

Global
EcoPulse | March 2025

EcoPulse | March 2025

Our nowcasts for Q1 show moderate growth in the euro zone (+0.2% q/q) and in France (+0.1% q/q). The Atlanta Fed's GDPNow, on the other hand, suggests the risk of a significant slowdown in US growth in Q1 [...]

Read the article
Eurozone
Eurozone | Modest improvement

Eurozone | Modest improvement

The unemployment rate held steady at 6.2% in January, an all-time low. Declines are most marked in southern Europe and Ireland, while the unemployment rate is relatively stable in France and Germany. Negotiated wages rose by 4 [...]

Read the article
Germany
Germany | An upcoming rebound?

Germany | An upcoming rebound?

The IFO business climate index remained stable in February compared with January, at 85.2, and remains close to the low recorded in November (84.7). It is the situation of industry that is having the greatest impact [...]

Read the article
France
France | Only a slight improvement

France | Only a slight improvement

Household confidence rebounded from 89 in December to 93 in February (95 in September, 100 on long-term average). The balance of opinion on past price trends, at -5 in February, reached its lowest level since July 2021 [...]

Read the article
Italy
Italy | Getting better

Italy | Getting better

Intentions to make major purchases in the coming year are at their highest level since July 2021. This should enable private consumption to further buoy Italian growth [...]

Read the article
Spain
Spain | Continued dynamism

Spain | Continued dynamism

The composite PMI (55.1 in February compared with 54 in January) was buoyed by the services component (PMI at 56.2; +1.3 pt). Nevertheless, industrial activity is deteriorating sharply, with industrial output down by 1% y/y in January (-22 [...]

Read the article
United States
United States | Fears about growth

United States | Fears about growth

Household sentiment deteriorated in February according to the Conference Board (98.3, -7.0 pts) and even more in March according to the University of Michigan (57.9, -6.8 pts), dragged down by worsening expectations [...]

Read the article
United Kingdom
United Kingdom | The economic situation remains tense

United Kingdom | The economic situation remains tense

The GfK index rose in February (+2 points to -22), but did not erase January's fall. The balance of opinion on the one-year financial outlook is back in positive territory. Retail sales rebounded by 1.6% m/m in January, after four months of decline [...]

Read the article
Japan
Japan | Inflation expected to weigh on growth

Japan | Inflation expected to weigh on growth

The upward trend in nominal wages continued in January, with contractual wages scheduled to rise by 3.2% y/y, a record since 1992. However, the real wages index fell sharply to -1.8% y/y in January (-2.1 pp), its lowest level since March 2024 [...]

Read the article