Economists expect deflationary pressure to get worse in China, even as they improve forecasts for growth and exports this year after a truce in the trade war with the US.
Consumer prices will likely increase by just 0.3% in 2025 from a year ago, the lowest projection since Bloomberg began polling the question in 2023 and down from the 0.4% predicted in April. China has seen economy-wide prices falling for two straight years, with consumer inflation below zero for the past three months.
The outlook for prices is deteriorating despite a more upbeat view of the world’s second-biggest economy after China and the US agreed to a temporary reduction of the punishing tariffs they’ve imposed against each other. Gross domestic product is forecast to expand 4.5% this year, based on a survey of 67 economists and analysts conducted over the past week, up from the median estimate of 4.2% in the previous poll.
“Recent data such as industrial production and exports suggest a degree of economic resilience amid the tariff negotiations,” said Dennis Shen, an economist at Scope Ratings. “Nevertheless, deflationary forces remain a core macroeconomic challenge.”
The reprieve on tariffs will do little for a domestic economy beset by price wars and contending with a prolonged property slump that’s suppressed demand. Deflation is eating into corporate profits and worker incomes, which can lead to a negative loop and result in even lower prices.
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The International Monetary Fund projects China’s consumer inflation will average zero this year, the lowest of the almost 200 countries it covers. That would be the weakest reading for China since 2009, when the global financial crisis hammered exports.
In the latest example of cutthroat competition among Chinese companies, carmaker BYD Co. slashed prices by as much as 34% on almost a dozen of its electric and plug-in hybrid models, stoking concerns of another wave of discounting in the EV market.
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Even so, the 90-day pause on tariffs has sent trade between China and the US surging as companies race to front-load orders. That’s prompted economists to rewrite their forecasts for 2025 and predict exports will grow 1.1% from a year ago, a sharp upgrade from the 1% contraction expected in April.
Apart from trade, economists polled by Bloomberg also raised their estimates for China’s industrial output and retail sales growth this year.
What Bloomberg Economics says...
But a more favourable backdrop for trade also means Chinese officials will probably deploy less support for the domestic economy than previously anticipated by markets, including fiscal and monetary stimulus.
The People’s Bank of China will likely lower its main policy rate — the cost of seven-day funds it provides to lenders — by only 10 basis points in the fourth quarter, according to the survey. The reserve requirement ratio is forecast to fall by 50 basis points in the final three months of the year.
