Our economic outlook for China

China’s activity data continue to highlight an increasingly uneven recovery. Strong external demand, supported by the global AI investment cycle and green-transition-related demand, is helping keep growth broadly on track toward the government’s target range of 4.5%–5%. However, domestic demand remains far from a meaningful turnaround and continues to lag the manufacturing and export sectors. Without a sustained recovery in household spending and private-sector confidence, the economy is likely to remain vulnerable to deflationary pressure, even if easing energy and shipping risks provide some relief to previous uncertainty.

The two-speed nature of the economy suggests that a recent reflation impulse lacks a strong domestic driver. Energy price pressures and persistent supply-chain strains have placed some upward pressure on producer and input prices, supporting China’s price recovery at the margin. However, pass-through to consumer inflation remains limited given subdued household demand and still-weak income expectations.

We do not expect a broad-based stimulus package in the near term. Policymakers are likely to focus on accelerating the implementation of existing fiscal measures and making fuller use of already-announced policy space. Still, if domestic softness proves more persistent, additional easing measures could be deployed later in the year, particularly to stabilize household demand and private-sector confidence.