Morgan Stanley Raises China’s 2025 GDP Growth Forecast to 4.5%

Morgan Stanley has increased its economic growth forecast for China. The firm now expects China’s GDP to grow by 4.5% in 2025 and 4.2% in 2026. These figures are higher than the previous estimates of 4.2% for 2025 and 4.0% for 2026.

Why the Forecast Was Raised

The main reason for this upward revision is reduced trade tensions. Morgan Stanley believes that additional tariffs will be limited to 30% over the next two years. This means fewer trade barriers for China, helping its economy grow slightly faster than expected.

Because the pressure from tariffs is lower, the Chinese government may not need to introduce aggressive economic stimulus. Instead, they might take a more cautious and delayed approach to economic support.

Q4 2025 Outlook Improved

Morgan Stanley also raised its outlook for the last quarter of 2025. It now expects 4.0% GDP growth in Q4 2025, up from its earlier forecast of 3.7%. This reflects a slower-than-expected economic slowdown, thanks to fewer trade issues.

Deflation and Weak Growth Remain Concerns

Despite the improved GDP numbers, there are still some major concerns:

• Housing and consumer spending remain weak, which keeps prices from rising.

• Deflationary pressures continue to affect the economy.

• Nominal GDP growth (which includes price changes) is expected to stay low, at just 3.5% to 3.6% in both 2025 and 2026.

• The GDP deflator, a key measure of inflation in the economy, is expected to be -0.9% in 2025 and -0.7% in 2026. This suggests that prices may actually fall slightly.

• Producer prices (PPI) and consumer prices (CPI) are also expected to stay weak.

What It Means for China’s Economy

Morgan Stanley says the current economic policies in China are designed to:

• Support growth slowly, without overusing stimulus.

• Address long-term problems like rising debt and an unbalanced economy.

However, China is not expected to shift away from its investment-driven growth model any time soon. This means the country’s economic transformation will be slow.

UBS Ups China’s 2025 GDP Forecast to 4%, Signals Mild Stimulus and Yuan at 7–7.4/USD

UBS has raised its 2025 GDP growth forecast for China from 3.4% to 4%, citing limited stimulus expectations. The firm anticipates a 0.3% drop in CPI and sees the yuan trading between 7 and 7.4 per US dollar. However, exports to the US could fall by 30% due to tariffs, potentially cutting 1 to 1.5 percentage points from GDP. Despite restrained stimulus, rate cuts and housing support measures are still likely.

Conclusion:

Morgan Stanley’s new forecast shows a slightly stronger outlook for China’s economy in 2025 and 2026, mainly due to lower trade tensions. However, deep-rooted challenges like weak consumption, housing troubles, and deflation will continue to weigh on overall growth.