BEIJING, Jan 19 (Reuters) - China's economic growth likely slowed to a three‑year low in the fourth quarter as domestic demand softened, and while the full‑year pace is set to hit close to Beijing's target,
trade tensions and structural imbalances pose significant risks to the outlook.
The world's second-largest economy showed remarkable resilience in 2025, helped by smaller-than-expected U.S. tariff hikes and exporters’ push to diversify away from the United States, allowing policymakers to keep stimulus to modest levels.
Yet, Beijing is facing arguably its biggest challenge beyond simply keeping its economy on an even keel in the near term, as deep structural vulnerabilities add to the relentless pressure from a Trump administration intent on curbing China's quest to build global scale in key areas including artificial intelligence and high-tech manufacturing.
A Reuters poll forecast gross domestic product (GDP) grew 4.4% in October-December year-on-year, easing from 4.8% in the third quarter and hitting the weakest pace since the fourth quarter of 2022 when the economy was still constrained by pandemic curbs, as consumption and investment faltered despite resilient exports.
Full-year economic expansion was expected to come in at 4.9%, largely meeting the official target of around 5%, the poll found. The economy grew 5.0% in 2024.
China's mighty manufacturing machine provided the much-needed economic lift. The nation this week reported a record trade surplus of nearly $1.2 trillion in 2025, driven by booming exports to non‑U.S. markets as producers diversified to offset tariff pressure from Washington.
But the reliance on external demand underscores vulnerabilities in China's economy, which is grappling with weak domestic spending amid a prolonged property slump and persistent deflationary strains.
On a quarterly basis, the economy is forecast to have grown 1.0% in the fourth quarter, compared with 1.1% in July-September.
The government is due to release fourth-quarter and full-year GDP data, along with December activity data, on Monday (0200 GMT).
The 2026 economic outlook is clouded by rising global trade protectionism and by U.S. President Donald Trump's unpredictable economic policies. Trump has threatened to impose a 25% tariff on countries that trade with Iran.
Indeed, the Reuters poll is forecasting China's economic growth will slow to 4.5% in 2026, piling pressure for more stimulus as policymakers look to address structural vulnerabilities to underpin the nation's longer-term health.
Providing an early boost to demand, China's central bank announced on Thursday cuts to sector-specific interest rates and kept the door open for further reductions in banks' cash reserve requirements and broader rate cuts.
"Growth is likely to stay weak in Q1 2026, as the policy package offers limited economic support," analysts at ANZ said in a note.
ECONOMIC IMBALANCES IMPEDE DEVELOPMENT
China’s nominal GDP likely grew about 4.0% in 2025, the ANZ analysts estimated, the slowest pace since 1976, excluding the 2020 pandemic year. China's GDP deflator - the broadest measure of prices across goods and services - has remained negative since 2023, underscoring persistent excess supply and weak demand.
At an agenda-setting economic meeting in December, Chinese leaders promised to maintain a "proactive" fiscal policy this year to support economic growth, which analysts expect Beijing to target at roughly 5%.
Chinese leaders have also vowed to "significantly" lift household consumption’s share of the economy over the next five years, though they have not set a specific target.
Most policy advisers believe China should lift the ratio to 45% by 2030, up from roughly 40% now. To achieve that goal, analysts say China will need to boost household incomes, which have been slowing, and strengthen its weak social safety net to curb high precautionary savings.
Falling property prices have also eroded household wealth, adding to the policy challenge.
Fang Ying, a 54‑year‑old delivery worker from the northeast, said his monthly income of about 8,000 yuan barely covers rent and living costs in Beijing, along with expenses for his school‑age son. He also lost around 100,000 yuan on a failed restaurant venture a few years ago.
"It’s not easy… I cannot compete with young people," Fang said. "There are many opportunities in Beijing, but not for people like me."
The World Bank and IMF have long urged China to shift toward consumption‑led growth and rely less on investment and exports, warning that the current model poses long‑term risks. Beijing has moved to curb excess industrial capacity and eliminate price wars, but economists say more needs to be done.
“China is facing a macroeconomic problem currently: excess supply. Overall domestic demand lags supply," said Louis Kuijs, chief Asia economist at S&P Global Ratings. "That weighs on growth and is leading to downward pressures on prices and profits. It also causes friction internationally as many companies are resorting to exports to escape ‘involution’ conditions at home."
Separate data on December activity, to be released alongside GDP data, is expected to show consumption weakened while factory output improved. Retail sales, a key gauge of consumption, are forecast to grow just 1.2% in December year-on-year, down from 1.3% in November - the weakest since December 2022, when China ended pandemic curbs. Factory output is seen growing 5.0% in December, versus November's 4.8% rise.
(Reporting by Kevin Yao;Editing by Shri Navaratnam)
