China’s economy appears to be slowing down in the first quarter of the year, with projected GDP growth at 5.1%, down from 5.4% in the previous quarter. This trend is raising concerns among policymakers, as escalating U.S. tariffs could significantly impact China’s financial stability and future growth. A recent poll conducted by Reuters reveals that growth is anticipated to slow further to 4.5% in 2025, which falls short of the official target of around 5.0%. The economic outlook for China seems increasingly challenging.
Analysts predict that growth will ease to 4.7% in the second quarter, with an even bleaker forecast of 4.2% in 2026. Citi analysts have suggested that the government may need to implement domestic stimulus measures earlier to combat external pressures. There are expectations for an increase of 1.5 trillion yuan in funding around mid-year to bolster domestic demand. The ongoing trade tensions with the U.S. — particularly the hike in tariffs on Chinese imports to an effective rate of 145% — have complicated China’s recovery from COVID-19.
Despite some signs of recovery in retail sales and manufacturing, rising unemployment continues to pose a significant challenge. Moreover, March saw a concerning decline in consumer prices for the second consecutive month, exacerbated by factory-gate deflation. In response to these economic challenges, the Chinese government has announced fiscal measures, including an increase in the annual budget deficit, and is preparing to implement more financial stimulus. The Politburo is set to convene to establish future policy directions, while the People’s Bank of China is expected to cut reserve requirements and interest rates to stimulate growth.
Consumer inflation is projected to rise minimally in the coming years, remaining below the government’s target, indicating ongoing economic headwinds.