China’s Economic Outlook

By Kevin Yao

BEIJING (Reuters) – China’s economic growth is likely to slow to 4.5% in 2025 and 4.2% in 2026, according to a Reuters poll. Policymakers are poised to roll out fresh stimulus measures to mitigate the impact of impending U.S. tariff hikes.

Gross domestic product (GDP) is expected to grow 4.9% in 2024, largely meeting the government’s annual target of around 5%, driven by stimulus measures and strong exports, based on forecasts from 64 economists polled by Reuters.

However, the world’s second-largest economy faces increased trade tensions with the U.S. as President-elect Donald Trump, who has proposed significant tariffs on Chinese goods, is set to return to the White House.

> “Potential U.S. tariff hikes may pose the biggest headwind for China’s growth this year, affecting exports, corporate investment, and household consumption,” analysts at UBS noted.

The growth likely improved to 5.0% in Q4 compared to a year earlier, moving faster from 4.6% in Q3, as support measures began to take effect. The economy is forecast to grow 1.6% in Q4 on a quarterly basis, rebounding from 0.9% in July-September.

The government is set to release Q4 and full-year GDP data, plus December activity data, on Friday (0200 GMT).

China’s economy has struggled since a post-pandemic rebound quickly faded, faced with a prolonged property crisis, weak demand, and high local government debt levels affecting both business and consumer confidence.

Policymakers announced several stimulus measures since September, including interest rate cuts, banks’ reserve requirement ratio (RRR) reductions, and a 10 trillion yuan ($1.36 trillion) municipal debt package. They also expanded a consumer goods trade-in scheme to boost retail sales.

More stimulus is anticipated this year, although the extent may depend on how swiftly Trump implements tariffs or other punitive actions.

MORE STIMULUS ON THE CARDS

During a key December meeting, Chinese leaders pledged to:
– Increase the budget deficit
– Issue more debt
– Loosen monetary policy to support growth in 2025.

They have maintained an annual growth target of around 5% for this year, supported by a record high budget deficit ratio of 4% and 3 trillion yuan in special treasury bonds, as reported by Reuters.

The government is expected to unveil growth targets and stimulus plans during the annual parliament meeting in March.

Facing rising economic risks and deflationary pressures, top leaders in December shifted from a 14-year-old “prudent” monetary policy to a “moderately loose” stance.

China’s central bank is expected to deploy its most aggressive monetary strategies in a decade this year to revive the economy, but risks could quickly deplete its resources, especially as it defends the yuan against downward pressure.

Analysts anticipate that the central bank will cut the seven-day reverse repo rate by 10 basis points in Q1, leading to a similar cut in the one-year loan prime rate (LPR) – the benchmark lending rate.

The PBOC may also lower the weighted average reserve requirement ratio (RRR) for banks by at least 25 basis points in Q1, following two cuts in 2024.

Consumer inflation is projected to rise to 0.8% in 2025 from 0.2% in 2024, with further increase to 1.4% in 2026.

($1 = 7.3308 Chinese yuan renminbi)

(Polling by Anant Chandak and Susobhan Sarkar in Bengaluru; Reporting by Kevin Yao; Editing by Kim Coghill)