Our economic outlook for China

Positive U.S.-China trade developments make us more optimistic about China’s growth prospects. After the U.S. and China agreed on May 12 to lower tariffs on each other’s goods for 90 days, we have increased our forecast for China’s 2025 economic growth to 4.6%. However, risks to the downside remain significant, given the disruption to China’s exports that has already occurred and an effective U.S. tariff rate on China that remains well above the rate before the April 2 U.S. tariff announcements.

Although a renewal of heightened tensions can’t be ruled out, progress on trade negotiations to date reduces the urgency for additional policy support. We expect policymakers to adopt a more reactive stance to further stimulus. Such an approach is also reflected in our monetary policy view. We foresee China’s policy rate—the seven-day reverse repo rate—ending 2025 at 1.3%, higher than our previous forecast of 1.2%. The People’s Bank of China announced a 10-basis-point cut to its policy rate, to 1.4%, on May 7. (A basis point is one-hundredth of a percentage point.)

We have lowered our forecast for headline inflation at year-end to just above zero as progress in trade talks eases pressure on prices of imported food, most notably U.S. soybeans. Meanwhile, uncertainty continues to weigh on energy prices. Our outlook for core inflation remains unchanged at 0.5%.