China: Domestic economy struggles while exports power ahead
China's economy grew stronger-than-expected in the first half of 2025 at 5.3% but has lost momentum again going into the summer.
Private consumption and housing has disappointed lately while the export engine has continued to run strongly.
A weak labour market and falling house prices are major obstacles to get a lift in household spending. We look for a step-up in stimulus measures but expect it to be inadequate to drive a sustained recovery in household spending. China is in a long-term transition of the economy that will take many years.
We have revised our GDP forecast for 2025 up from 4.7% to 4.9% due to the stronger numbers for the first half of the year. In 2026 we keep the forecast unchanged at 4.8%
China is all-in on tech and increasingly leads in emerging technologies alongside improving the manufacturing muscle further through automation and fast diffusion of AI.
US-China tensions have eased but the long term rivalry remains. Tensions with EU have been on the rise this summer and the relationship is set to be strained over the coming years.
The question of reunification with Taiwan continues to linger but we see limited risk of military conflict during Trump's Presidency.
Author
Danske Research Team
Danske Bank A/S
Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.
