Our economic outlook for China

China’s economy has maintained steady growth so far in 2025, with key activity data for the first five months remaining robust. The consumer goods trade-in program and a frontloading of existing policy measures have supported economic momentum. Despite higher U.S. tariffs, exports have remained resilient, supported by frontloading and shipment rerouting. The recent 90-day trade truce with the U.S. may prompt another wave of frontloaded exports, and we expect trade volatility to ease in the near term, providing temporary relief to the export sector. However, tariff-related uncertainty remains elevated and continues to pose downside risks to growth.

We recently raised our 2025 GDP growth forecast for China to 4.6% from 4.2%, primarily due to the de-escalation of trade tensions with the U.S. As tariff shocks subside, policymakers are likely to adopt a more measured and reactive approach, with a modest policy rate cut of 10 basis points to 1.3% expected by year-end. (A basis point is one-hundredth of a percentage point.) Further stimulus is likely to be deferred, with a near-term focus on policy implementation. In addition, we expect growth to moderate in the second half of this year, given export and consumption frontloading, a persistent downturn in property values, and elevated trade policy uncertainty.

The policy response remains modest, targeted, and reactive, prioritizing investment and production over consumption. As a result, subdued domestic demand and a challenging external environment will likely sustain deflationary pressures for the rest of 2025. Our outlook for core inflation remained unchanged, and the path toward broader reflation is expected to be gradual and bumpy.