Editor's note:
This article was published in China Daily
.
The author is
the global chief economist at BOC International (China).
The latest forecast from the International Monetary Fund suggests global economic growth will remain steady, with a projected growth rate of 3.2 percent in 2025.
Growth rates for developed economies and emerging markets are expected to be 1.8 percent and 4.2 percent, respectively, unchanged from the previous year.
However, the IMF also highlighted significant downside risks to the economic outlook, including the escalation of geopolitical conflicts that could further disrupt energy markets, the adoption of harmful trade and industrial policies by various countries, prolonged tightening of monetary policy, and the possibility of a sudden tightening of global financial conditions. US President Donald Trump's administration will also be a key factor influencing the global economic outlook.
On the one hand, under a weak global economic backdrop, energy price growth is likely to slow down, and US rental prices may lead to a decline in housing inflation. As a result, US inflation is expected to continue to ease, and the US Federal Reserve is likely to continue interest rate cuts. However, the Trump administration's fiscal expansion, immigration policies and trade practices could pose a risk of inflation rebound, limiting the Fed's ability to reduce rates further. If the Fed maintains restrictive monetary policies for an extended period, it could increase the downside risks to the US economy and raise uncertainties around a "soft landing".
On the other hand, during his campaign, Trump threatened to impose high tariffs on all imports, with particularly aggressive trade policies toward China. Such tariff policies have already triggered retaliatory measures, and could trigger more from other countries, severely impacting global trade growth.
From a bilateral trade perspective, the trade imbalance between China and the US has significantly improved since 2018. According to US statistics, China's share of US imports dropped to 13.7 percent in 2023, a decrease of 7.7 percentage points from 2017. Additionally, the US trade deficit with China as a share of the total US deficit dropped by 20.7 percentage points to 26.2 percent, marking the lowest level since 2005. These figures suggest that the US has little political gain in continuing to pressure China on trade issues. However, "Trump 2.0's" push for higher tariffs on Chinese imports could escalate economic and trade tensions. While China's reliance on US exports has decreased, the imposition of high tariffs on goods produced in China and reexported to the US through third countries could still have a significant impact on China's export-driven economic growth.
In the second half of 2024, China's government repeatedly emphasized the need to strengthen macroeconomic policies, enhance countercyclical adjustments, and effectively implement existing policies while introducing new measures to boost growth. It is expected that China's fiscal and monetary policies will remain supportive in 2025, with a focus on improving people's livelihoods and stimulating consumption. In the final year of the 14th Five-Year Plan (2021-25), maintaining stable economic operations is crucial for coping with external risks and setting the stage for a strong start to the 15th Five-Year Plan (2026-30). The economic growth target for 2025 is likely to remain around 5 percent.
Amid policy support, consumption recovery will gradually strengthen. Since 2024, various policies aimed at boosting consumption have been rolled out, with notable measures like the policies to support trade-in deals for consumer goods. These policies are expected to further stimulate purchases of cars and home appliances. In September, the central bank announced a lowering of mortgage rates for existing home loans, which helps further support consumer spending. Moreover, the two additional statutory holidays in 2025 are expected to boost consumer expenditure. However, compared to investment, consumption is a slower-moving variable, with recovery mainly constrained by income growth. In 2024, wage incomes and net property incomes had slowed, with net property income growth hitting a historic low of 2.2 percent. Considering supportive policies for the real estate and capital markets, however, property-related income may increase, helping drive gradual consumption recovery.
Real estate market is expected to stabilize and recover. In September 2024, a meeting held by the Political Bureau of the Communist Party of China Central Committee said efforts should be made to reverse the downturn of and stabilize the real estate market, signaling a clear policy shift. According to the Ministry of Housing and Urban-Rural Development, the transaction volume of new homes in China went up 0.9 percent year-on-year in October last year, marking the first growth after 15 months of decline. The policy effects are expected to continue into 2025. Notably, the government's strategy of soaking up unsold inventories has played a key role in stabilizing the market. However, the effectiveness of this policy has been limited due to insufficient price adjustments, making it difficult to price properties reasonably.
Manufacturing and infrastructure investments are expected to remain key supports for growth. Although the slowdown in export growth may suppress manufacturing investment, the Ministry of Finance indicated in early November that fiscal policies would be more supportive of large-scale equipment upgrades, helping to maintain high growth in manufacturing investment. This has been reflected in a 15.7 percent year-on-year increase in the investment on purchases of equipment and tools in 2024, 12.5 percentage points higher than the overall investment growth rate. Infrastructure investment is expected to be supported by multiple factors, including the country's local debt package, which will free up fiscal resources to support infrastructure projects. Additionally, major projects under the 14th Five-Year Plan are expected to accelerate this year.
In 2025, global uncertainties will significantly increase, with the Trump administration's policies emerging as a key variable affecting the global economic outlook. Earlier this month, the US imposed a 10 percent additional tariff on goods imported from China, as well as 25 percent tariff on goods from Mexico and Canada. In 2025, China's economy is expected to experience a gradual recovery in consumption, a stabilization in real estate market, and manufacturing and infrastructure investments will remain key for supporting China's economic growth.
To maintain steady economic growth amid external challenges, it is essential for China to intensify countercyclical adjustment of its fiscal and monetary policies and focus on boosting consumption and improving people's livelihoods. The space for fiscal easing has expanded, particularly with the recent decline in long-term government bond yields. Inflation concerns will be addressed when they arise, but for now, stabilizing the economy, mitigating risks and improving expectations are the priority. Only so can China build the resilience needed to respond to external shocks. Additionally, recent shifts in macroeconomic policy and the domestic economic recovery offer valuable time to advance structural reforms, including deepening fiscal and tax system reforms and fostering new quality productive forces according to local conditions.
Furthermore, China should actively manage external risks and mitigate the negative impact of "Trump 2.0". To avoid further trade conflicts, China should work to influence US policymakers, guiding both countries toward more cooperative trade policies. Moreover, China must remain vigilant, monitoring developments in US economic policies and preparing for potential challenges, strategically seizing opportunities even in the face of difficulties.
The writer is global chief economist at BOCI China.
