The World Bank has raised its 2025 growth forecast for China, signalling renewed confidence in the world’s second-largest economy amid ongoing trade tensions and domestic challenges.
The institution now expects China’s gross domestic product to grow 4.8% next year, up from 4% in its April projection, aligning more closely with Beijing’s official growth target of around 5%.
The upgrade comes as part of a broader upward revision for East Asia and the Pacific, a region that has shown resilience despite global uncertainty.
The World Bank did not cite a single catalyst for the adjustment but pointed to continued government support and robust exports that have helped sustain growth in 2024 and early 2025.
Trade truce stabilizes outlook after tariff turbulence
China’s economy faced significant volatility earlier this year when the US sharply increased tariffs on Chinese imports, briefly pushing them above 100% before a trade truce took effect in mid-year.
The truce, in place until November, has temporarily stabilized trade flows, though tariffs remain high at 57.6%, more than double their level at the start of 2024.
Even under such pressure, Chinese exports have proved surprisingly strong.
Shipments to Southeast Asia and Europe have grown rapidly, offsetting sharp declines in exports to the US.
Many American importers accelerated orders ahead of potential new tariff hikes, providing a short-term boost to China’s trade figures.
This export-driven momentum has helped cushion the economy from deeper pain stemming from sluggish domestic demand.
However, World Bank economists cautioned that as these one-off factors fade, growth may lose steam.
Domestic economy still struggling to regain balance
While trade has provided a buffer, domestic indicators show China’s recovery remains uneven.
Retail sales rose just 3.4% in August from a year earlier, missing expectations, while real estate investment fell 12.9% in the first eight months of the year — deepening from the 12% drop recorded through July.
Preliminary data from the extended eight-day “Golden Week” holiday also point to subdued consumer sentiment.
According to Nomura’s Chief China Economist Ting Lu, average daily domestic passenger trips rose 5.4% year-on-year during the Oct. 1–5 period, slower than the 7.9% pace seen during the May holidays.
Lu warned that actual consumption could be weaker than official data suggest, as this year’s Golden Week combined the National Day and Mid-Autumn Festival, which are usually celebrated separately.
Economists note that the property downturn, coupled with high youth unemployment — affecting roughly one in seven young people — continues to weigh on consumer confidence.
Growth expected to moderate as stimulus winds down
Looking ahead, the World Bank projects China’s GDP growth will ease to 4.2% in 2026, as exports decelerate and fiscal support is scaled back to contain debt.
Economists anticipate Beijing will reduce its reliance on stimulus, focusing instead on longer-term reforms to improve productivity and balance regional growth.
The report highlights structural challenges including an aging population and limited job creation from startups compared to other major economies.
Startups in China expand employment fourfold, versus sevenfold in the U.S., partly due to the dominance of state-owned enterprises.
Regional spillover from China’s rebound
China’s stronger-than-expected growth is expected to lift the broader East Asia and Pacific region, with the World Bank now forecasting 4.8% growth for 2025, up from 4% earlier.
The Bank estimates that a one-percentage-point change in China’s GDP typically affects growth in the region by about 0.3 percentage points.
Globally, however, momentum remains fragile.
The World Bank cut its 2025 global growth forecast in June to 2.3%, warning of persistent trade frictions and weak investment flows.
Despite China’s upgrade, the institution emphasized that the country’s growth is entering a slower but more sustainable phase, increasingly driven by innovation and services rather than exports and property.
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