China Outlook: Trump’s Tariff Pause and Implications for China’s Economy

Last week, the International Monetary Fund (IMF) projected China’s economy to expand by 4.6% in 2025, up from its previous growth forecast of 4.5%. Notably, the IMF cited ‘elevated trade policy uncertainty’ as a contributory factor to weak demand, affecting China’s growth outlook.
The IMF’s outlook and concerns about trade policy uncertainty underscored the importance of more stimulus targeting consumption.
However, China’s Q4 2024 GDP numbers raised uncertainties about whether Beijing will roll out more stimulus measures. Natixis Asia Pacific Chief Economist Alicia Garcia Herrero reacted to the data, saying:
“China’s 2024 GDP growth exactly on target (5.0028%!!). What a coincidence. Does this mean that China’s economy is doing so well that there is no need for further stimulus?”
Analysts suggest Beijing may focus on policies to boost consumption as part of its economic strategy.
Consumption and Stimulus Measures
The economic rebound and the potential for improving US-China relations could boost consumer sentiment.
A pickup in economic activity could fuel job creation, wage growth, and consumer spending, crucial for China’s economic outlook. A pickup in job creation and wage growth may also contribute to an uptick in consumer confidence.
The potential improvement in consumer sentiment could make Beijing’s consumption-focused stimulus measures more effective.
On January 15, Beijing announced trade-in-policies for mobile phones, smartwatches, and tablets, effective January 20. Fresh measures targeting consumption could further bolster China’s economy.
Upcoming indicators, including retail sales and unemployment data, will reveal the effectiveness of these measures. A significant pickup in consumer spending could signal a shift toward a consumption economy.
Market Reactions: Diverging Trends
Hopes for improving US-China relations and Beijing’s stimulus measures boosted demand for Hong Kong-listed stocks. The Hang Seng Index was up 0.40% on Tuesday, January 21, adding to its 1.75% gain from Monday.
However, uncertainty about Trump’s longer-term tariff goals and Beijing’s stimulus plans pressured Mainland China’s equity markets. The CSI 300 and Shanghai Composite dropped by 0.16% and 0.35%, respectively.
This article was originally published by a www.fxempire.com
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