Economists predict increased deflationary pressures in China, despite improved projections for economic growth and exports this year, following a temporary trade truce with the United States (US).

A Bloomberg survey of 67 economists conducted last week forecasts consumer prices to rise by just 0.3% in 2025. This is down from a previous estimate of 0.4% made in April.

This is the lowest inflation estimate since polling began in 2023. Consumer inflation has remained below zero for the past three months, reflecting a broader trend of falling prices over the last two years.

China’s gross domestic product (GDP) is now expected to grow by 4.5% in 2025, an increase from the earlier forecast of 4.2%. Improved expectations for industrial production and retail sales have contributed to this more optimistic outlook.

Exports are also projected to grow by 1.1% this year, a significant revision from the 1% contraction forecasted in April. This is partly due to increased trade activity during the 90-day pause on tariffs between China and the US.

🔗 Source: Bloomberg

🧠 Food for thought

1️⃣ China’s deflation parallels its 1998-2002 episode, suggesting deeper structural issues

China has faced deflation before, experiencing a significant deflationary period from 1998 to 2002 following monetary and fiscal tightening that began in 1993 1.

During that previous episode, the government attempted to revive the economy through looser monetary and fiscal policies starting in 1997, but these measures proved insufficient as deflation had already taken hold 1.

Today’s situation mirrors this historical case with similar structural challenges: industrial overcapacity, reluctant bank lending, and suppressed consumer demand, issues that persist regardless of external trade conditions 1.

This historical parallel helps explain why the current deflationary pressure might continue despite the improved export outlook mentioned in the news article. The underlying domestic economic imbalances remain largely unaddressed.

The World Economic Forum analysis warns that if overcapacity persists, it could lead to a debt-deflation spiral, threatening China’s economic stability beyond the temporary effects of trade tensions 1.

2️⃣ The deflation-trade war connection reveals complex economic interactions

The trade war has significantly increased tariffs on Chinese goods, rising from 3% in January 2018 to over 20% by September 2019, creating sustained pressure on China’s export-oriented sectors 2.

While the recent tariff truce has prompted economists to upgrade growth forecasts as noted in the article, historical data suggests trade tensions have already contributed to China’s economic growth slowing to its lowest since 1992 2.