ANZ upgrades China’s 2025 GDP forecast after resilient H1 performance

ANZ has upgraded its 2025 GDP growth forecast for China to 5.1% from 4.2%, citing unexpected resilience in the first half driven by robust exports and domestic consumption, despite lingering deflationary pressures. While structural challenges persist, the property sector's drag has notably lessened. The revision anticipates further interest rate cuts and sustained fiscal stimulus, with the upcoming Politburo meeting eyed for clearer policy direction.

Analysis

ANZ has materially upgraded its 2025 real GDP growth forecast for China to 5.1% from 4.2%, citing unexpected economic resilience in the first half of the year. This revision is supported by a robust 5.3% expansion in H1, driven by a 5.9% year-on-year surge in exports and a 5.2% increase in retail sales. Despite this headline strength, significant underlying risks persist, most notably deflationary pressures, as evidenced by nominal GDP growth of only 3.9% and negative CPI and PPI readings. The property sector's drag on the economy is moderating, with the decline in new home sales slowing to 5.2% in H1 from 17.6% in 2024, but it remains a source of weakness. The outlook anticipates further policy support, including a potential 20bp interest rate cut and the deployment of substantial fiscal stimulus from an estimated 10 trillion yuan in unused capacity. The upcoming July Politburo meeting is flagged as a key catalyst for providing clearer policy direction to address these structural challenges.

Key Decisions for Investors

• Consider maintaining or selectively increasing exposure to Chinese equities, particularly in export-oriented and consumer-driven sectors that are demonstrating clear momentum.
• Closely monitor deflationary indicators such as CPI, PPI, and the divergence between nominal and real GDP, as persistent price weakness could erode corporate profit margins and signal faltering domestic demand.
• Investors should view the upcoming July Politburo meeting as a critical event, as its policy announcements will likely serve as a major catalyst for market sentiment and direction.
• Exercise caution towards the property sector and its related value chains; while the rate of decline has slowed, the sector remains a structural headwind without a clear path to a robust recovery.