China’s economic stimulus to partially offset US tariffs in 2025

China’s economy is projected by Goldman Sachs Research to grow at a slower pace in 2025, as the government’s stimulus efforts partially offset the impact of potential tariffs from the US.

Real GDP growth is predicted to decelerate to 4.5% next year from 4.9% in 2024. Goldman Sachs Research’s forecast assumes a 20 percentage-point increase in the effective tariff rate imposed by the incoming Trump administration on Chinese goods, which would weigh on China’s real GDP by 0.7 percentage point in 2025. The forecast also assumes that Chinese policymakers will introduce fresh stimulus to blunt the impact of tariffs.

“The choice in front of Chinese policymakers is simple: either to provide a large dose of policy offset or to accept a notably lower headline real GDP growth,” Chief China Economist Hui Shan writes in the team’s report. “We expect them to choose the former.”

In other aspects, the focus for China’s leadership hasn’t changed: Officials are determined, over the medium term, to steer the economy toward a technology-driven and self-reliant growth model. The cost of doing so — climbing the ladder to produce higher quality growth — is slower economic expansion, according to Goldman Sachs Research. Our economists forecast real GDP growth to average 3.5% from 2025 to 2035, compared to 9.0% during 2000-2019.

“The Chinese economy faced significant growth headwinds in 2024, and policymakers finally started more forceful easing in late September,” Shan writes. “How Chinese policymakers will lean against the wind to stabilize domestic consumption and the property market, and to manage renewed US-China trade tensions, will be the overarching theme of 2025.”

How will China support its economy?

Historically, China’s government has looked to support its economy through infrastructure and property construction. This time around, Goldman Sachs Research believes China’s policymakers will likely react by cutting policy rates considerably and increasing the fiscal deficit.

Strong exports have been the sole bright spot in the Chinese economy this year, contributing 70% of the expected 4.9% headline real GDP growth, according to Goldman Sachs Research. Even though Chinese exporters may continue to gain market share in emerging-market countries, amid significantly higher US tariffs, growth of total exports is likely to decelerate sharply. The contribution to real GDP growth from exports may drop materially next year. 

Chinese exports to non-US countries (which are estimated to be more than 85% of China’s total exports) will likely increase modestly in 2025, thanks partly to strong price competitiveness and potential currency depreciation. Goldman Sachs Research expects China’s total goods export volume to be flat next year relative to this year (versus a 13% gain in 2024).

The outlook for inflation in China

Goldman Sachs Research’s inflation projections are notably below the consensus estimates of economists. Shan expects CPI and PPI inflation to be 0.8% and 0% next year, respectively, compared to Bloomberg’s consensus of 1.2% and 0.4%. “There are structural factors weighing on inflation, including the multi-year housing downturn and persistent industrial overcapacity,” Shan writes. “Restoring consumer confidence and strengthening labor markets and wage growth are likely to take time.”

Policymakers in September pledged a raft of measures to support everything from China’s property sector to its equity market amid slowing consumption. Household consumption contributed just 29% to headline GDP in the third quarter of 2024, down from 47% in the second quarter and 59% before the onset of the pandemic. Goldman Sachs Research expects growth in household consumption to stay flat at 5% in 2025.

“The weakness in domestic demand has finally struck the ‘policy put,’ and the current easing emphasizes local government debt resolution, household consumption, and equity market performance,” Shan writes.

Is China’s property market near the bottom?

Still, China’s ongoing property downturn is likely to continue to be a significant drag. New home starts and government revenue from land sales plunged by 60-70% from their peak in 2020-21. New home sales and completions almost halved in the latest data.

Given the many structural challenges, our economists see “no quick fix” for the nationwide property sector and expect the downturn to be a multi-year drag on growth for the Chinese economy.  Goldman Sachs Research projects that the property sector will likely weigh on China’s GDP growth by 2 percentage points in 2025 (versus -2.1 percentage points in 2024). The team expects the growth drag to narrow starting from 2026 but to linger until 2030.

“With incremental housing easing measures ahead, it is possible to see a stabilization of home prices in some large cities next year — but probably not nationwide,” Shan writes. “For many construction-related property activities, their multi-year downtrend appears inevitable.”

While our economists’ 4.5% forecast for GDP in 2025 is in line with consensus expectations, they note the range of possible outcomes is wide for next year. Higher-than-expected tariffs by the US administration is a key downside risk; US president-elect Donald Trump has threatened to raise them by as much as 60 percentage points, and revoking China’s Permanent Normal Trade Relations status would see the effective tariff rate climb by 40 percentage points. Regarding the upside risk, Chinese goods exports could prove more resilient than expected, which could cause growth to come in higher than forecast.

 

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