Beijing has in recent years been seeking to reverse a stubborn slump in household spending as a protracted debt crisis in the real estate market and overseas tumult in the trade sector spook consumers.
The International Monetary Fund’s latest World Economic Outlook report noted “weakness in domestic demand” in the world’s second-largest economy — echoing a broader Asian outlook dimmed by Washington’s trade war.
Consumer prices fell in August at their fastest rate in six months, according to official figures. Data expected Wednesday will show how they fared in September.
Given those hurdles, the IMF said China’s “fiscal policy stance remains appropriately expansionary”.
But it also warned current policies mark “a continued departure from the stance that is needed to avoid rising debt to GDP over the medium term”.
“For China, rebalancing toward household consumption — including through fiscal measures with a greater focus on social spending and the property sector — and scaling back industrial policies would reduce external surpluses and alleviate domestic deflationary pressures,” the IMF said.
The Fund forecast China’s annual growth to hit 4.8% year-on-year in 2025 before slowing to 4.2% next year.
Both figures were unchanged from last update in July.
In a sign of coming pressure, growth is expected to slow to 3.7% in the fourth quarter of this year, a slight downward revision.
The IMF’s latest advice comes ahead of a key political gathering of China’s ruling Communist Party next week in Beijing, where leaders will chart the country’s economic direction for the next five years.
The report was compiled before a bombshell announcement Friday by US President Donald Trump of 100% tariffs on Chinese goods from Nov 1 — retaliation for Beijing’s new sweeping export controls on rare earths.
Trump’s announcement rattled markets and cast doubt on a potential meeting with Chinese President Xi Jinping in South Korea.
Beijing’s commerce ministry vowed Tuesday to “fight to the end” in its trade war with Washington, if necessary.
Globally, “trade policy uncertainty is assumed to remain elevated through 2025 and 2026”, the IMF said.
Tariffs bite
Growth in emerging and developing Asia is forecast to slow from 5.3% in 2024 to 5.2% in 2025, and further to 4.7% in 2026.
The IMF said the trend “largely mimicked that of effective tariff rates”, with Asean countries among the most affected.
Japan is expected to rebound from near-stagnation, with growth rising from 0.1% in 2024 to 1.1% in 2025, supported by stronger real wages and consumer spending. Growth is seen easing to 0.6% in 2026.
India’s economy is projected to expand 6.6% in 2025, revised upward due to a strong first quarter, before slowing to 6.2% the following year.
The China-US trade standoff was encouraging countries to relocate production out of China to Southeast Asia and India, and the IMF reported a shift in trade flows towards Asia in the automotive sector.
The IMF however warned that trade diversion and rerouting — while offering short-term resilience — are costly and risk fragmenting global supply chains.
Prolonged uncertainty over trade policy is, in the Fund’s view, likely to weigh on business investment decisions and cloud growth prospects, while fragmenting supply chains over the medium term.
It also cautioned that ad hoc trade deals “would not meaningfully reduce trade policy uncertainty” and could trigger “tit-for-tat dynamics” if they discriminate against third countries.