Our economic outlook for China
March 21, 2025
Our outlook for year-end 2025
4.5%
Economic growth,
year over year
For a third straight year, the National People’s Congress has set China’s GDP growth target at “about 5%.” Although the economy appears to have started the year robustly, we expect the strength to wane, and we forecast full-year real GDP growth around 4.5%. The economy has found early strength through a durable-goods trade-in incentive, a pre-tariff front-loading of export production, and sturdy lunar new year spending. Still, we expect growth to falter. That’s because much of the first quarter’s spending is likely to come at the expense of spending later in the year, U.S. tariffs took effect earlier than expected, and housing policy support has been limited after early signs of a housing rebound in 2024. An April Politburo meeting—informed by first-quarter economic data and further global trade developments—will be a test of whether policy momentum shifts to support greater consumption.
1.5%
Core inflation, year over year
We foresee only a modest inflationary thrust from currency depreciation in the face of higher tariffs. Rather, supply-centric policy support has reinforced a negative feedback loop between weak demand and low prices. Both the magnitude and composition (that is, greater support to consumers) of policy stimulus are critical to breaking the cycle.
1.2%
Monetary policy rate
The strength of economic recovery depends on the magnitude and allocation of policy stimulus. Well-designed implementation of announced measures will matter to ease developers’ burden while flexibly destocking a housing industry overhang. Meanwhile, we expect monetary easing—we foresee a 30-basis-point cut to the policy seven-day reverse repo rate and 50 basis points of cuts to banks’ reserve requirement ratios—to facilitate fiscal expansion.
5.1%
Unemployment rate
We believe that structural mismatches in labor supply and demand, particularly among younger workers, may not be easily addressed in the near term and could require additional policy support. We foresee the unemployment rate remaining around current levels the rest of the year.
What I’m watching
China’s holistic fiscal policy stance
Monetary policy has likely reached the limits of its ability to stimulate the economy given weak domestic demand, with liquidity injections being offset by softening business sentiment. To significantly increase growth momentum, fiscal policy needs to take the lead. The heavy lift will fall to the central government, given local governments’ debt concerns. We expect monetary policy easing to support fiscal expansion. Further fiscal stimulus could take the form of budget revisions, with a debt-ceiling overshoot possible.
Grant Feng,
Vanguard Senior Economist
China's fiscal deficit and its components
Notes: Augmented fiscal deficit is a fiscal deficit measure that includes typically off-budget activities, including local government financing vehicles and land sales.
Source: Vanguard calculations, based on Ministry of Finance data as of August 31, 2024.
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