BOFIT releases latest forecast at China briefing

On Monday (Nov. 10), the Bank of Finland’s Institute for Emerging Economies (BOFIT) released its latest Forecast for China 2025–2027, noting that China had experienced higher economic growth than expected in our previous forecast last April on unexpectedly strong exports. The National Bureau of Statistics (NBS) reported that China’s GDP grew by 5.2 % in January-September, but the growth has slowed in recent months. The uncertainty surrounding China’s growth figures, however, remains large. For example, BOFIT’s own alternative calculation of Chinese GDP suggests actual growth has been running about a percentage point below official figures. We see China’s growth slowing over the coming years due to structural factors such as the greying of the population, the diminished returns from the country’s investment-driven model and feeble productivity growth. Real GDP growth next year is likely to remain at around 3.5 %, before declining to around 3 % in 2027.

While exports have been a significant driver of economic growth due to China’s exceptionally strong price competitiveness, the country’s export performance has faded in recent months. We expect lower export growth in of the forecast period as many countries (not just advanced Western economies) have started to erect trade barriers against Chinese products. Moreover, the market-share dominance of Chinese products globally is already so large that any further gains are more challenging. While the combination of strong export performance and weak imports is propelling China’s current account surpluses to record highs, we expect export growth to slow and import growth to pick up during the forecast period, thereby reducing the size of current account surpluses. The government would like to see domestic consumption become the primary engine of growth, but consumer confidence, despite slight improvement, is still weak and the real estate sector’s collapse remains a drag on investment. The growth rate of industrial fixed investment has slowed recently, and we expect the ratio of fixed investment to GDP to shrink only gradually.

The government has only limited options to use fiscal stimulus measures due to long-running very large deficits and high levels of indebtedness. Over the long run, China needs to balance revenues and spending, but it is difficult as the rapidly ageing population puts increased spending pressure on the government. Moreover, there is little political appetite for winding down the country’s powerful industrial policies. With inflation close to zero and yuan’s appreciation pressure, the central bank should enjoy a bit of room to adopt a more accommodative monetary stance. Small positive steps have been seen in economic policy such as the introduction of a child benefit and increases in the retirement age, but generally progress in structural reform remains slow. The forecast is subject to large uncertainties due to geopolitical tensions, increased risk in the financial sector and the unreliability of statistical data.

Our latest forecast was released as part of BOFIT’s annual China briefing (video and presentation materials in Finnish). In addition to reviewing the highlights of the forecast, the briefing touched on China’s foreign trade, climate targets and international use of the yuan.

China’s GDP growth, factors contributing to growth and BOFIT forecast (f) for 2025–2027

Sources: China National Bureau of Statistics, CEIC and BOFIT.