China faces slower growth in 2025 as tariff risks loom — BofA
Investing.com— China’s economic outlook for 2025 remains clouded by weak domestic demand and mounting deflationary pressures, despite a recent uptick in expectations for policy stimulus, according to Bank of America (BofA) analysts.
While the country has benefited from a technology product upcycle and resilient demand from the global south, consumer and investor confidence remains subdued, exacerbated by a struggling property market.
BofA analysts, in a research note, revised their forecast for China’s GDP growth to 4.5% in 2025, down from 4.8% in 2024. While the Chinese government continues to target a 5% growth rate for the final year of its 14th Five-Year Plan, achieving this goal will hinge on both the effectiveness of domestic stimulus measures and the external pressures posed by escalating trade tensions, particularly with the U.S..
China’s policymakers have signaled a pivot toward more aggressive fiscal and monetary easing. Since late September, a series of modest stimulus measures have been rolled out, including increased fiscal expenditure and efforts to stabilize the property market. Analysts believe these steps reflect a shift in policy orientation, with top leadership prioritizing economic stabilization over structural reforms.
In its base case, BofA anticipates that the U.S. will increase tariffs on Chinese goods in 2025, raising rates from 20% to 30% in the second quarter and up to 40% by the end of the year. Should these tariffs materialize, China is expected to counter with a range of policy responses, including widening the fiscal deficit to 3.5% of GDP, increased bank capital injections, and further interest rate cuts. Additionally, the People’s Bank of China (PBoC) may deploy its targeted lending tools to support the property sector, which remains a key drag on overall growth.
In a more pessimistic scenario, where the U.S. imposes blanket tariffs of 60% on all Chinese exports starting in early 2025, BofA forecasts China’s GDP growth could fall to as low as 3.9%. Such a drastic tariff hike would lead to a sharp contraction in Chinese exports, particularly to the U.S., and would exacerbate the already challenging trade environment. The U.S. may also target a broader range of global trading partners, further dampening global trade.
While Chinese authorities are likely to ramp up fiscal expansion and monetary easing in response to such a shock, BofA analysts caution that these measures may not fully offset the negative impact of the tariffs. The risk of deeper disruptions in trade, manufacturing, and domestic demand could further limit growth prospects.
Despite the downside risks from escalating trade tensions, there are some factors that could support a more resilient Chinese economy in 2025. Upside risks include stronger-than-expected fiscal measures aimed at subsidizing consumption, as well as a rebound in external demand, particularly from emerging markets. On the flip side, downside risks remain, especially if China’s trading partners tighten restrictions on Chinese exports or if policy measures fall short of expectations.
As China approaches the final year of its current economic plan, policymakers are likely to continue prioritizing stabilization measures, but the external environment—especially U.S. trade policy—will be a key determinant of the economy’s path forward. The next few months will be crucial in determining whether China’s recovery can gather momentum or whether it faces another year of subdued growth.