Credit rating agency Moody’s, a globally recognized institution in credit rating, has made a notable revision to its forecast for China’s Gross Domestic Product (GDP) growth in 2025.
The forecast for 2025 has been lowered from 4.5% to 3.8%. This adjustment is presented as indicating a more pessimistic view of the Chinese economy’s trajectory for the current year.
Moody’s identified two primary factors influencing this downward revision:
- Intensifying trade tensions with the United States: Relations between China and the United States have been tense in recent years, marked by waves of tariffs and retaliatory measures. There is a prediction that these tensions may escalate with the potential return of the Trump administration. Tariffs are described as essentially taxes on imports, increasing the cost of goods. According to some reports, US tariffs on Chinese goods could reach an unprecedented 125% by 2025. This impacts China’s exports, potentially leading to a decrease in the volume of exports due to increased prices for American consumers and businesses. Even if exports continue, a portion of the profit will be spent on paying tariffs, reducing export revenues. Furthermore, complex and intertwined supply chains between China and the US are under pressure, and reconstruction requires significant cost and inefficiency. The intensification of trade tensions also creates a climate of uncertainty for businesses and investment. This could lead to reduced Foreign Direct Investment (FDI) in China by American companies due to trade risks, and companies dependent on exports to the US might delay or cancel their expansion plans.
- Weakening global economic conditions: China is described as being highly dependent on international trade. Consequently, a weakening global economy will reduce demand for China’s exports from other countries. Factors contributing to the weakening global economy include slower growth in major economies like Europe and Asia, which directly negatively impacts China’s exports. Increased global tensions can reduce economic confidence and destabilize markets. High interest rates and inflation worldwide lead to decreased consumption and investment, slowing down the pace of global growth. Non-tariff disruptions in supply chains, such as wars or natural disasters, can also affect global trade.
Moody’s specifically highlighted that these two factors are expected to have a negative impact on key drivers of China’s economy: investment and consumption. Uncertainty stemming from trade tensions and global recession reduces companies’ willingness to invest, which delays growth in production capacity, job creation, and innovation. Increased uncertainty, the possibility of job losses, and a negative global environment can weaken consumer confidence, leading to reduced demand for goods and services, a significant component of GDP.
In summary, Moody’s reduction of China’s economic growth forecast for 2025 serves as a serious warning regarding the potential impacts of escalating trade tensions with the US and the global economic slowdown on China’s key economic activities, like investment and domestic consumption.
