Moody’s Lowers China’s 2025 GDP Growth Forecast to 3.8%
China’s economy is projected to face significant challenges over the next two years, with GDP growth expected to fall below 4%. A recent report from Moody’s Ratings highlights the impact of escalating trade tensions and unfavorable global economic conditions on investment and consumer confidence. The report revises earlier growth forecasts for 2025 and 2026, indicating a sharp decline from previous estimates and falling short of the Chinese government’s growth target.
Revised Growth Projections
Moody’s Ratings has downgraded its projections for China’s real GDP growth, forecasting a rate of 3.8% for 2025 and 3.9% for 2026. This marks a significant reduction from earlier estimates of 4.5% and 4%, respectively, made in February. The new outlook also contrasts sharply with the Chinese government’s official growth target of 5%. Despite this gloomy forecast, China’s economy experienced a year-on-year growth of 5.4% in the first quarter of 2025, largely driven by a surge in exports and supportive government policies aimed at stabilizing growth. Improvements in fixed asset investment, a slight easing in the contraction of the property sector, and a leveling off of credit demand contributed to this positive start. However, Moody’s cautions that without additional stimulus measures, the current growth momentum may not be sustainable.
Impact of Trade Tensions
The ongoing trade tensions between China and the United States are casting a shadow over the country’s economic outlook. A notable decline in Chinese shipments to the U.S. in April, coupled with the effects of high tariffs, raises concerns about future growth. Moody’s estimates that export growth accounted for nearly one-third of China’s economic growth in the first quarter of 2025. However, replicating this performance in the coming months may prove challenging due to ongoing tariff uncertainties and a decrease in export demand. Currently, China faces a base tariff of 10% and an additional 145% levy from the U.S., which could further strain trade relations. While there are indications that both nations may be open to negotiations, no formal discussions have commenced, and Moody’s believes that tariffs will remain significantly restrictive in the near future.
Global Economic Context
In addition to the challenges facing China, Moody’s has also revised its global growth forecasts for 2025 and 2026. The agency cites increased policy uncertainty, particularly in the U.S. and China, as a contributing factor. Despite ongoing investments by Beijing in high-tech and green industries, domestic demand remains fragile. The report emphasizes that even with government fiscal and monetary support, it is unlikely that domestic demand will be sufficient to offset the negative impacts of external demand. The trade measures imposed by both nations are described as “prohibitively high,” potentially choking off most direct bilateral trade if they remain in place, alongside the anticipated short-term disruptions.
Future Outlook
Looking ahead, the economic landscape for China appears precarious. The combination of reduced growth projections, ongoing trade tensions, and a challenging global economic environment poses significant risks. Moody’s warns that without further stimulus beyond the measures announced at the annual Two Sessions in March, the current economic momentum may falter. The agency’s assessment underscores the need for strategic interventions to bolster domestic demand and navigate the complexities of international trade relations. As the situation evolves, stakeholders will be closely monitoring developments to gauge the potential impact on China’s economic trajectory.
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