“We are not super positive about China,” said Gilles Moëc, chief economist at Axa Investment Managers. He noted that AxaIM’s view is in line with the consensus which anticipates a gradual divergence between the actual GDP growth in China and the government official target which is still at 5%. He thinks that with or without Trump around, “China is a country that needs to change deeply its economic model,” as the country cannot rely on the housing market which used to account for 20% of its GDP.
Chinese real estate market: an ongoing pain
“The measures which have been taken last year to revive the [real estate] market have not had any visible effect,” observed Moëc. He pointed at the housing sales in September, which were reported to be at half of the market peak. Admittedly, he remarked that previous real estate market corrections elsewhere in the world often took years “to go through.”
It will not help that on the face of a diminishing population, there is a reduced need for new accommodation, coupled with a lower necessity to bring Chinese quality standards to international levels as he thinks that China has “probably completed its quality catch-up.”
A weak euro, probably far from parity, is precisely what the doctor prescribes at the moment
China thought that it may have found its path to growth in the form of a “production quality model,” whereby it has allocated capital to industries with a strong capacity for innovation. However, they rely heavily on exports. As observed with electric cars, the US and Europe to a lesser degree, do not accept to play their part in the equation nor “to accept a lot of Chinese production” on US territory.
Ongoing anaemic growth in Europe
In Europe, AxaIM predicts GDP growth at a level below consensus in 2025 (1.0% vs 1.2%) and in 2026 (1.3% vs 1.4%), a recurrent disappointing theme for Moëc. It reflects a PMI manufacturing that has been below expansion “for a year,” while prospects are not improving. Even worse, the euro area services PMI is barely holding in expansion territory (December 2024: 51.4), having moved to a contraction level in November (49.5).
Moëc thinks that a divergence between the Fed and the ECB is bad news for the euro. “A weak euro, probably far from parity, is precisely what the doctor prescribes at the moment,” a welcome development ahead of a possible trade war with the US.
He is not too concerned about the impact of a 10% tariffs per se, on European goods entering the US as they account for only 2% of the eurozone’s GDP. However, he is troubled by the , a measure of negativity in newspapers which has started to diverge between Europe and the US since the beginning of Russia’s war in Ukraine and the energy shock.
Further tariffs uncertainty coupled with an elevated level of anxiety on the back of domestic source of instability (Germany, France) are raising household savings instead of improving consumption.
To finish on a positive note, or is it?
Moëc remarked that Inflation has fallen “pretty quickly” in Europe. In addition, he thinks that “mediocre” growth in Europe will be further pulled back by Germany and France in 2025. These developments should all contribute to “significant” interest rate cuts at the European Central Bank, a source of growth acceleration in 2026. He sees the ECB interest rate going beyond the generally accepted neutral rate of around 2% and reaching a level of about 1.5% already in 2025.