China’s growth will fizzle next year despite stimulus efforts, and its issues will drag down neighboring economies, World Bank says

Chinese leader Xi Jinping at a speech in Beijing in September 2024.

China’s stimulus measures aren’t enough to stem the decline of its economic fortunes, and the troubles facing the world’s second-largest economy will also be a drag on its neighbors, a new report from the World Bank finds.

The report, released Tuesday, says that China’s outsized growth has had positive spillover effects on nearby developing economies for years. Yet, as China’s growth slows amid a struggling economy and tepid stimulus efforts, those countries will also see growth contract.

The bank forecasts China’s economic growth will slow to 4.3% next year, down from a forecasted 4.8% for 2024. Growth in East Asia and the Pacific, meanwhile, will slow to 4.4% in 2025 from about 4.8% this year as a result.

“For three decades, China’s growth has spilled over beneficially to its neighbors, but the size of that impetus is now diminishing,” the group said.

The authors point in particular to developing economies in East Asia, which benefited from increasing demand from China for imports even as it competed heavily as an exporter of goods.

China’s neighbors saw positive spillover effects from increased Chinese demand for commodities and services and from the relocation of Chinese production to those countries, the report says.

The authors estimate that a 1% increase in China’s GDP per-capita growth was associated with a 0.13% increase in GDP per-capita in emerging markets between 2020 and 2023.

But now, with China’s domestic demand stuck in low gear, its neighbors will feel the impact of China’s export strength more drastically.

“If China’s exports grow faster than its imports, as has continued to be the case in manufacturing and overall trade, then the negative impact of increased competition may outweigh the positive impact of demand enhancement in international markets,” the report says.

It says that a one percent slowdown in China’s growth could reduce GDP growth in neighboring developing economies by as much as 0.21%.

The report from the World Bank comes shortly after officials in Beijing announced a round of stimulus measures last month, vowing to rescue the economy from a struggling property sector and weak consumer demand.

The measures, which included lower interest rates and liquidity support, plus relaxed restrictions on homebuying, fueled a stock market rally in the country and abroad as investors cheered any indication of future growth after months of downbeat data.

However, the World Bank warns that the measures are still undefined, which makes it tough to calculate their impact on China’s growth.

Aaditya Mattoo, the World Bank’s East Asia and Pacific chief economist, said the stimulus measures’ fiscal impact has yet to be determined.

“The question is whether [the stimulus] can actually offset consumer concerns about declining salaries, concerns about declining property incomes and fears about falling ill, growing old, becoming unemployed,” Mattoo said in a Tuesday interview with CNBC.

Mattoo added that China will need to implement deeper structural reforms to see any long-term growth, but that the rest of the region will still welcome the stimulus efforts since it’s so dependent on the country for growth.

In the meantime, the rest of the region will “need to strengthen domestic drivers of growth by implementing long-deferred deeper reforms” to see growth independent of China, the report says.

China’s officials previously said the country is targeting “around 5%” growth for this year. In recent months, economists have increasingly said that goal is out of reach.