Rhythmic Reasoning_Full Report_Final_EN - Flipbook - Page 31
RHYTHMIC REASONING | TEMPO, TIMING AND TUNING
CHINA
Derek Holt
Walid Khalid
Vice President, Scotiabank Economics
Director, Investment Strategy
Latest
2024
2025f
2026f
GDP Growth
5.3%
5.0%
4.8%
4.2%
Inflation
-0.4%
0.2%
0.1%
0.9%
Unemployment
5.3%
5.1%
5.2%
5.1%
Budget Bal.
-4.8%
-4.8%
-5.6%
-5.7%
Latest
2024
1-yr fwd
2-yr fwd
3-mo yield
1.4%
0.9%
1.5%
1.4%
10-yr yield
1.8%
1.7%
2.0%
2.1%
Yield curve slope
0.4%
0.8%
0.5%
0.6%
~5% full-year target. However, growth is expected to moderate in
the quarters ahead, as per consensus forecasts (Fig. 1).
Fig. 1: GDP growth is expected to slow in the quarters ahead
6%
4%
2%
0%
Source: Scotia Wealth Management, Bloomberg Finance LP.
"Latest" values are as at September 30, 2025 and, for data other than bond yields,
pertain to the most recent monthly, quarterly, or annual reading available on this
date. | Forecasts are based on Scotiabank Economics forecasts dated September
11, 2024 | 2023 inflation and unemployment are based on the average YoY rates
for each month of the year. | 2023 yields are as at December 31, 2024. Forward
periods are relative to September 30, 2025 and are based on forward market pricing.
KEY CONCLUSIONS
•
•
•
We have revised our 2025 real GDP growth forecast higher as
China’s economy held up better-than-expected in 1H25.
Momentum has slowed in recent months, as domestic
demand conditions remain soft and exports slowed. As such,
we expect growth to moderate further in 2026 relative to this
year.
We anticipate a continued fiscal push, alongside modest
cuts to the 7-day reverse repo rate this year and next as
policymakers try to shore up domestic demand conditions.
CHINA’S ECONOMY HELD UP BETTER THAN EXPECTED IN
1H25…
Owing to the resilience seen in the first half of the year, we have
revised our 2025 real GDP growth forecast higher to 4.8% from
4.0% previously. Our 2026 forecast has also been revised higher by
two-tenths to 4.2%.
In 2Q25, GDP growth printed at 5.2% year-over-year (YoY),
modestly above expectations and still just enough to satisfy the
1Q25
2Q25
3Q25
4Q25
China real GDP growth (YoY % chg)
1Q26
2Q26
3Q26
4Q26
Real GDP growth target
Source: Bloomberg Finance LP, Scotia Wealth Management |
Grey bars represent consensus forecasts for YoY real GDP growth
Exports strength in May and June, driven by the U.S.-China tariff
truce and rerouting to Europe and ASEAN economies, helped
cushion the impact of tariffs. However, this outperformance rests
on shaky ground, as it likely reflected front-loaded shipments
rather than a durable revival in external demand.
…HOWEVER, SLOWING MOMENTUM POINTS TO MODERATING
GROWTH IN 2H25.
China’s August activity data confirmed that momentum is slowing,
with all major indicators falling short of market expectations. Retail
sales decelerated to their weakest pace since late 2024, industrial
output fell to a year-low, and fixed-asset investment was just shy
of contraction. The overall picture is of an economy losing steam
despite earlier policy efforts, reinforcing doubts over whether this
year’s 5% growth target can be achieved without another round of
stimulus (Fig. 2).
In terms of the details, retail sales growth fell to 3.4% yearover-year (YoY) in August, the lowest since November 2024, from
3.7% YoY, keeping consumption well below its pre-pandemic trend
levels. Some of the drag reflects the fading impact from earlier
trade-in subsidies, which had previously lifted categories like home
appliances and electronics (that went from a 34% YoY rise in July
to now 20% YoY in August). Monthly sales did rise, but at just 0.17%
month-over-month (MoM), the pace is shy of seasonal norms. The
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