China can still expand roughly 5 percent next year even as domestic price growth sits near zero, the IMF said. The fund raised its growth forecast to 5.0 percent for 2025 and 4.5 percent for 2026, but warned headline inflation averaged about 0 percent in 2025 and is only expected to reach roughly 0.8 percent in 2026. IMF staff who met Beijing officials in early December urged faster, stronger steps to shift growth toward household consumption, saying current gains rely too heavily on exports and policy support.
Upgraded growth, stubbornly low prices
The IMF raised its near-term growth forecast for China. It now expects growth of 5.0 percent in 2025 and 4.5 percent in 2026. The revision is due to stronger exports and recent fiscal stimulus, the fund said.
Inflation, however, is weak. Headline inflation averaged about 0 percent in 2025. The IMF projects it will edge up to 0.8 percent in 2026. Low inflation is one reason real incomes aren't rising fast enough to lift consumption.
The gap between healthy growth and weak prices is central to the IMF’s concern. Growth numbers suggest activity is recovering.
Price data show demand is still subdued. That mix complicates policy choices for Beijing.
IMF staff noted China still makes a large contribution to global expansion. The fund estimated China accounts for about 30 percent of world growth over the recent period.
What Beijing has done and what the IMF wants
IMF teams met senior officials in Beijing and Shanghai from December 1 to 10. The mission chief for China, Sonali Jain-Chandra, led the visit. Ms.
Jain-Chandra met the finance minister and the central bank governor.
Beijing has already loosened policy. The authorities adopted an expansionary fiscal stance. They eased monetary settings. They unveiled targeted measures to lift consumption and ease property stress.
The government also raised the retirement age and boosted subsidies for elderly care and childcare. Officials launched local government debt swaps to ease refinancing pressures. Those steps aim to lift labor supply and reduce financing strains.
IMF staff welcomed the moves. But they said more forceful and faster action is needed. As Ms. Jain-Chandra put it, "China’s economy has shown notable resilience despite facing multiple shocks in recent years." She added the fund wants policies that do more to raise domestic demand.
Why exports are propping up growth
Low inflation at home has a side effect. It lowers China’s real exchange rate versus trading partners. That makes Chinese goods cheaper abroad. Exports have therefore remained strong.
The IMF said strong exports helped lift growth in 2025. But the fund warned export-led expansion has limits. China is the world’s second largest economy. It’s too big to rely on external demand alone for prolonged growth.
Trade tensions and tariffs have added uncertainty. The IMF noted recent tariff reductions between the United States and China helped the near-term outlook. But it also said elevated trade tensions could persist and keep uncertainty high.
The fund projected China’s current account surplus would widen to about 3.3 percent of GDP in 2025. That surplus partly reflects the contrast between robust external demand and weak domestic spending.
Structural headwinds: property, debt and productivity
IMF staff flagged longer-term constraints on growth. The property sector remains on shaky ground years after its earlier crisis. That has hit local government finances and credit demand.
Corporate and public debt are still elevated. Productivity growth has slowed. Returns to investment are falling. The population is aging. Together, these factors point to slower potential growth over time.
Those headwinds help explain why policy must do more than boost demand temporarily. The IMF said the 15th Five Year Plan’s emphasis on shifting activity toward services and consumption is the right direction. But the plan needs supporting measures to change behaviour across households and firms.
The fund set out several broad policy priorities during the mission. It urged measures that strengthen household incomes. It pushed for social spending that targets health, childcare and pensions. The IMF said such spending would support services and raise consumption.
The fund also recommended steps to ease excess saving and reduce ‘‘involution,’’ or intense competition that depresses wages and demand in some sectors. It asked for stronger action to stabilise the property market and to resolve local government debt risks.
Monetary and fiscal measures should remain supportive, the IMF said. But policy should be more explicitly geared to foster private consumption rather than temporarily boost output through investment or exports.
A China that grows at 5 percent while inflation stays near zero changes financial signals. Low domestic prices can keep real interest rates higher than headline rates indicate. That affects corporate borrowing and household spending decisions.
For global markets, a China leaning on exports to sustain growth can widen trade imbalances. The IMF cautioned reliance on external demand risks creating frictions with trading partners. Policymakers abroad watch those dynamics closely.
The IMF’s projection upgrade also affects global growth math. If China grows faster than previously expected, it helps global demand. But the fund stressed the quality of growth matters. Consumption-led growth would offer steadier import demand for other economies than export-driven expansion.
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IMF mission chief Sonali Jain-Chandra said the economy "has shown notable resilience" but urged faster, stronger steps to raise domestic demand.
This article was created with AI assistance.
