Contrasting Economic Plans to Support Competing Economies

By Financial Planning on December 11, 2024

December 11, 2024

China Signals to Further Stimulus

Over the coming years, China is set to deliver some of the most aggressive stimulus in decades. During the Politburos (a group of 24 top officials overseeing the Chinese Communist Party and central government) December meeting on Monday, the committee stated that it plans to embrace a “moderately loose” monetary policy in 2025 – shifting from the “prudent” strategy it has had in place for 14 years.

The group signaled further interest rate cuts to come and is likely to widen the 3% fiscal deficit during the annual parliamentary meeting in March. They believe the country will hit its 2024 GDP growth goal of 5% and that the goal will be met smoothly. Additionally, China plans to continue to push for technological innovation and improve supply chains, open the economy, and stabilize foreign investor relations and trade. The country and its head officials are adamant about improving its economic outlook, with one member of the CCP stating that “every means possible” will be deployed to boost consumption among its citizens.[1]

The news comes as China’s inflation data decelerated in November; the Consumer Price Index (CPI) rose just 0.2% y/y in the month, with factory deflation occurring in 26 consecutive months. The country has been experiencing deflation for many months as consumer sentiment and demand remain low. The inflation reading gives further reasoning for more government intervention likely to be needed, which we believe is likely to target the consumption-based economy.

Chart 1: For the First Time Since the Great Financial Crisis, China’s Policy Chance is Now “Moderately Loose”[2]

No figures were provided to indicate what the next round of stimulus would look like, but it will likely target Chinese citizens. The $1.4 trillion local debt package released in early November was not a form of direct stimulus to its citizens, the package instead aimed to repair municipal balance sheets and ease local government financing strains.[3] This followed China’s stimulus package from September which focused on improving the country’s property market through lowering down-payments and mortgage rates, which ultimately lowered borrowing costs on as much as $5.3 trillion in mortgages.[4] A 2025 stimulus package is likely to look similar to September’s, with more focus on direct stimulus to uplift the consumer base.

India Announces New Central Bank Governor

In a surprising move to investors, India announced a new central bank governor on Monday. Sanjay Malhotra will serve a three-year term for the country, following over a three-decade career across government roles in financial services, power, and information technology.[5] The move comes after the Reserve Bank of India (RBI) voted to keep interest rates unchanged at 6.5% while also boosting liquidity in its banking system.

India is home to the fastest-growing economy in the world, but inflation has been a concern for its government and citizens as of late – prices rose 6.21% to a 14-month high in October, above the RBI’s 4% inflation target. The central bank also raised its inflation forecast for the year through 2025 to 4.8% from 4.5% and lowered its growth forecast to 6.6% from 7.2%. The new central bank governor will likely bring new ideas around taming inflation and improving economic growth in India. Officials that have worked closely with Malhotra stated that he is growth-focused and that he believes central bank policy should align with government policy to manage inflation.[6]

Chart 2: India Remains One of the Only Global Economies Growing GDP Over 6%[7]

India remains one of our favorite long-term investment themes for a number of reasons. The country is home to some of the most favorable demographics in the world, consisting of the largest population, 40% of citizens under the age of 25, and a consumer market that is expected to double by 2031. Foreign investment in India as a proportion of GDP hit a ten-year high of 34% in 2023 and global foreign direct investment hit an all-time high of $84 billion two years ago. Earlier this year, new policies were passed to invite companies to build the world’s leading electric vehicles and semiconductors in India.[8] Last July, Narendra Modi was re-elected to serve his third term as Prime Minister; he remains focused on improving the country’s infrastructure, implementing pro-growth policies, as well as inviting innovation and technology into the country.

As China is thinking through stimulus packages to increase economic activity and growth, India is trying to tame inflation as a result of record-high growth. China is also plotting how to face possible tariffs from the incoming Trump administration, a decision that could make India a desired destination for international manufacturing. We believe 2025 will be a year of more growth and positive developments for India as companies look to move their businesses to the country given their pro-business government and regulations.

Stephanie Link’s TV Schedule:

Disclosures

Investment Solutions is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC. This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is neither indicative nor a guarantee of future results. The investment opportunities referenced herein may not be suitable for all investors. All data or other information referenced herein is from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other data or information contained in this presentation is provided as general market commentary and does not constitute investment advice. Investment Solutions and Hightower Advisors, LLC or any of its affiliates make no representations or warranties express or implied as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. Investment Solutions and Hightower Advisors, LLC assume no liability for any action made or taken in reliance on or relating in any way to this information. The information is provided as of the date referenced in the document. Such data and other information are subject to change without notice. This document was created for informational purposes only; the opinions expressed herein are solely those of the author(s) and do not represent those of Hightower Advisors, LLC, or any of its affiliates.

[1] Source: Bloomberg. As of December 9, 2024.

[2] Source: Bloomberg. As of December 9, 2024.

[3] Source: Reuters. As of November 8, 2024.

[4] Source: Bloomberg. As of September 23, 2024.

[5] Source: Reuters. As of December 9, 2024.

[6] Source: Reuters. As of December 9, 2024.

[7] Source: IMF. As of November 25, 2024.

[8] Source: Atlantic Council. As of May 29, 2024.