China Economic Update : Unlocking Consumption

Overview & Synopsis

China’s economy has maintained solid growth momentum in early 2025, supported in part by monetary, fiscal, and property sector policy easing. However, growth is projected to moderate from 5.0 percent in 2024 to 4.5 percent in 2025 and 4.0 percent in 2026, as global trade restrictions and uncertainty weigh on exports, manufacturing investment, and labor demand. Beyond short-term stimulus, China will need to rely more on household consumption as an engine of growth. A sustained improvement in household consumption will require greater reform ambition, including (i) redirecting fiscal resources towards healthcare and social protection to reduce precautionary savings, (ii) addressing local governments' financial constraints to help maintain public services and drive public consumption, (iii) pursuing a more progressive fiscal system to stimulate consumption as lower-income households have a higher propensity to spend, and (iv) tackling the property sector overhang to restore household wealth and confidence.