China's economic growth is anticipated to decelerate sharply, with forecasts suggesting a growth rate of 4.5% in 2025, followed by a further slowdown to 4.2% in 2026, according to a Reuters survey. This trajectory reflects the impact of impending U.S. tariff increases, prompting policymakers to prepare additional stimulus measures.
In 2024, China's GDP is expected to have expanded by 4.9%, meeting the government's target of around 5%. This growth was supported by stimulus efforts and robust exports. However, escalating trade tensions with the United States, particularly under the incoming administration of President-elect Donald Trump, pose significant risks. Analysts from UBS highlighted that potential U.S. tariffs could adversely affect exports, corporate investments, and household consumption.
China's economy has faced challenges post-pandemic, including a lingering property crisis, subdued demand, and high levels of local government debt, which have dampened business and consumer confidence. To counteract these pressures, policymakers have implemented extensive stimulus measures since September, encompassing interest rate cuts, reductions in banks' reserve requirements, and a substantial municipal debt package. Additional initiatives include expanding trade-in schemes for consumer goods to bolster retail sales.
Looking ahead, analysts expect further stimulus measures in 2025, contingent on the pace and severity of U.S. tariff actions. Chinese leaders have committed to maintaining an annual growth target of around 5% for 2025, supported by a record-high budget deficit ratio of 4% and issuance of special treasury bonds totaling 3 trillion yuan. Plans for growth targets and additional stimulus are anticipated to be unveiled during the March annual parliament meeting.
In response to mounting economic risks and deflationary pressures, Chinese policymakers shifted from a "prudent" to a "moderately loose" monetary policy stance in December, signaling a more aggressive approach to revitalize the economy.
Consumer inflation is projected to rise from 0.2% in 2024 to 0.8% in 2025, and further to 1.4% in 2026, indicating moderate price pressures amid ongoing economic adjustments and stimulus efforts.