Economic Outlook for Next Year: Global and Domestic Perspectives

I. Assessment of the International Economic Situation in 2025

1. The global economy is still expected to maintain a pattern of moderate stagflation. Both the global GDP growth rate and the GDP deflator index may experience a slight decline, but the global inflation rate will remain significantly higher than the global growth rate.

2. Global geopolitical economic conflicts will continue to be prone and frequent. The trend of deglobalization under the backdrop of major power games will continue, and the fragmentation of global supply and industrial chains after the COVID-19 pandemic will also persist. These three forces become the main forces that strengthen global supply-side constraints and raise the central level of inflation.

3. Due to the timely interest rate cuts by the Federal Reserve and the relatively large initial reduction, as well as the good coordination between the easing of fiscal and monetary policies and their marginal tightening, the probability of a soft landing for the U.S. economy in 2025 is relatively high, with an expected growth of about 1.5-2% for the year. On the basis of a 100 basis point rate cut in 2024, the Federal Reserve is expected to continue to cut rates by 150 basis points in 2025. By the end of 2025, it is expected that the federal funds rate will return to around 3.0%, the yield on 10-year U.S. Treasury bonds will return to 2.5-3.0%, and the U.S. dollar index is expected to return to around 95.

4. Affected by the trend of deglobalization and the continuous impact of geopolitical conflicts, the Eurozone economy will continue to maintain a weak growth pattern in 2025, with an expected growth of 1% for the year, and the European Central Bank may cut interest rates more frequently and by a larger margin than the United States. The euro exchange rate against the U.S. dollar is expected to remain around 1.1, and the yen exchange rate against the U.S. dollar may fluctuate in the range of 130-140.

5. The volatility of the U.S. stock market in 2025 may increase significantly. The first reason is that the decline in the growth rate of the real economy may reduce the profitability of listed companies. The second reason is that the excessively high valuation of the "Seven Sisters" may significantly fall under internal and external shocks. However, the Federal Reserve's consecutive interest rate cuts will become a force to stabilize the stock market. Overall, the probability of a systemic financial risk in the U.S. financial system in 2025 is relatively low.

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II. Assessment of the Domestic Economic Situation in 2025

1. In general, China's economy will still face a situation of insufficient total demand, which is specifically reflected in the relatively low growth rates of consumption and investment, and the growth rates of CPI and PPI may fluctuate within the range of -1% to 1%. The growth rate of consumption is constrained by the low growth rate of residents' income and the weak consumer confidence. The low growth rate of investment is constrained by insufficient domestic and foreign demand, adjustment of the real estate market, and local government debt pressure.

2. In 2025, the risk of a decline in export growth rate will increase. On the one hand, the moderate decline in global economic growth may reduce external demand. On the other hand, the pressure of trade protectionism from developed countries in the United States and Europe may further rise, especially the containment measures against the "new three items" that performed well in China's exports in 2024 may further escalate. It is necessary to focus on preventing the risk of Trump's assumption of office and significantly increasing tariffs on Chinese export goods and indirect export goods.

3. The four consecutive actions taken by the People's Bank of China on September 24, including lowering the reserve requirement ratio, interest rates, existing mortgage loan interest rates, and creating a stock market liquidity provision tool, will help stabilize market confidence, drive the stock market to warm up, and appreciate the renminbi exchange rate in the short term. However, considering the current low confidence and expectations of market entities, expansionary monetary policy cannot fully play the role of stimulating micro demand. Loose monetary policy still needs the support of loose fiscal policy. At present, it is necessary to quickly issue special government bonds to stimulate consumption, help small and medium-sized enterprises, stabilize the real estate market, and stabilize the stock market. It is recommended to issue 1 trillion yuan of special government bonds in the fourth quarter of 2024 and issue 4-5 trillion yuan of special government bonds in 2025.4. The greatest risk currently still lies in the real estate market. The real estate market is facing three major risks: first, the continuous decline of housing prices in the core areas of first-tier cities; second, leading private developers are facing a dual impact of liquidity shortages and insufficient operating cash flows; third, a large number of unsold commercial housing in third and fourth-tier cities. Corresponding countermeasures include: first, fully relaxing restrictions on loans, purchases, and sales in first-tier cities; second, provincial governments providing credit enhancement for leading private developers in their provinces that are relatively stable in operations; third, the central government issuing special treasury bonds, with newly established institutions purchasing some commercial housing in second and third-tier cities with population inflow and converting them into affordable housing.

5. Without additional policy stimulus, it is expected that China's economic growth rate will fall to around 4.0-4.5% by 2025, and the overall downward pressure on prices will continue to exist. If fiscal, monetary, real estate, and local debt policies are fully implemented, China's economic growth rate in 2025 is expected to remain around 5%, and the Chinese economy is expected to break free from the low inflation situation, with both CPI and PPI growth rates potentially rising to around 1%. In the latter scenario, China's nominal GDP growth rate is expected to surpass that of the United States again.