Our economic outlook for China

China’s economy demonstrated resilient growth in the second quarter, with real GDP expanding by a stronger-than-expected 5.2% year over year and a solid quarter-over-quarter increase of 1.1%. Given this strength, we have upgraded our full-year China GDP forecast from 4.6% to 4.8%. Growth was primarily underpinned by robust exports and frontloaded policy easing. A goods trade-in program has boosted consumption, and accelerated policy stimulus has supported economic growth. Exports have remained resilient in the face of U.S. tariffs, supported by frontloading and the rerouting of shipments. We expect external policy volatility to subside in the coming months, offering temporary relief to the export sector. Peak tariffs may be behind us, but headwinds remain, with the U.S. average tariff rate on China higher now than it was at the beginning of the year.

We expect China’s growth momentum to moderate in the second half. Positive impulses from frontloaded exports are likely to fade, while several sources of headwinds will weigh on demand. They include the expiration of the trade-in program, new austerity measures for government officials and state-owned enterprise managers, efforts to address overcapacity, and renewed property market weakness.

The government has adopted a gradual, data-dependent policy approach. Strong growth in the first half makes additional near-term stimulus unlikely. With deflationary pressures set to persist throughout 2025, the path toward reflation is likely to be gradual and bumpy.