Moody’s cuts China 2025 GDP growth forecast to 3.8% weighed by ongoing tariff tensions

China’s economy is expected to undergo a major slowdown over the next two years, with GDP growth dipping below 4% as trade tensions intensify and global economic conditions weigh on investment and consumer confidence, a recent report by Moody’s Ratings said.

The report projects Beijing’s real GDP growth for 2025 to stand at 3.8% and 3.9% in 2026, a sharp downgrade from its February projections of 4.5% and 4%, respectively. The outlook also falls well short of the Chinese government’s official 5% growth target.

However, the country’s GDP rose by 5.4% year-on-year in the first quarter of 2025, indicating a strong start for the financial year. This early-year boost was largely driven by a surge in exports and a combination of government fiscal and monetary policies aimed towards stabilising growth.

Fixed asset investment improved, property sector contraction eased, and credit demand levelled off while industrial production and retail sales also showed signs of recovery.

However, the ratings agency also warned that without further stimulus beyond measures announced at the annual Two Sessions in March, the current momentum may not stay the same for long, with GDP growth decelerating below 4% dragged down by the ongoing trade tensions and weakening global growth.

A steep decline in Chinese shipments to the US in April, combined with the growing impact of elevated tariffs, is casting a long shadow over the outlook for the coming months.

“We estimate that export growth drove nearly a third of China’s economic growth in Q1 2025,” Moody’s said. “ “Repeating that feat from last year's high base would be difficult given ongoing tariff uncertainty and softer export demand.”

At present, China faces a base 10% tariff and an additional 145% levy from the US, a move that could further strain already fragile trade relations.

While there are indications that both sides are open to negotiations, no formal talks have begun, and Moody’s believes tariffs will remain “considerably restrictive” in the near term.

The agency also cut its global growth forecast for 2025 and 2026, citing increased policy uncertainty, especially in the world’s two largest economies, the US and China. Despite Beijing’s continued investment in high-tech and green industries, Moody’s says domestic demand remains vulnerable.

The report further added that even support from government’s fiscal and monetary policies is “unlikely to lift domestic demand enough to offset the negative impact on external demand”

Commenting on the ongoing tariff war between Beijing and Washington, the report said that the trade measures imposed by the two nations on each other are “so prohibitively high that they would likely choke off most direct bilateral trade if they remain in place, on top of the likely short-term disruptions noted earlier.”

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