Goldman Sachs’ inflation projections for China are significantly lower than the consensus

We had soft inflation figures from China for November out an hour or ago:

• China November CPI +0.2% y/y (expected +0.5%) PPI -2.5% y/y (expected -2.8%)
• China’s Inflation Data: November Trends and Projections

Looking ahead, Goldman Sachs’ inflation projections for China in 2025 are significantly lower than the consensus among economists, according to a research note. The firm forecasts Consumer Price Index (CPI) inflation at 0.8% and Producer Price Index (PPI) inflation at 0%, compared to Bloomberg’s consensus estimates of 1.2% and 0.4%, respectively. Goldman analyst Shan highlights structural challenges weighing on inflation, including a prolonged housing market slump and industrial overcapacity. “Restoring consumer confidence and strengthening labor markets and wage growth are likely to take time,” Shan notes.

Amid slowing consumption, Chinese policymakers introduced measures in September aimed at supporting the property sector, boosting equity markets, and addressing broader economic challenges. However, household consumption’s contribution to GDP fell sharply to 29% in Q3 2024, down from 47% in Q2 and 59% pre-pandemic. Goldman Sachs predicts household consumption growth will remain flat at 5% in 2025.

“The weakness in domestic demand has finally triggered the ‘policy put,’ with the current easing cycle focused on resolving local government debt issues, stimulating household consumption, and improving equity market performance,” Shan said.

***

Weakness in domestic demand has been on ongoing theme for China. Stimulus measures so far have been lacklustre in the eyes of the market. There are further discussions due from officials this week:

• China’s annual central economic work conference is set to convene this week

This article was written by Eamonn Sheridan at www.forexlive.com.