Investing.com-- China's economic outlook for 2025 remains clouded by weak domestic demand and mounting deflationary pressures, despite a recent uptick in expectations for policy stimulus, according to Bank of America (BofA) analysts.

While the country has benefited from a technology product upcycle and resilient demand from the global south, consumer and investor confidence remains subdued, exacerbated by a struggling property market.

BofA analysts, in a research note, revised their forecast for China's GDP growth to 4.5% in 2025, down from 4.8% in 2024. While the Chinese government continues to target a 5% growth rate for the final year of its 14th Five-Year Plan, achieving this goal will hinge on both the effectiveness of domestic stimulus measures and the external pressures posed by escalating trade tensions, particularly with the U.S..

China’s policymakers have signaled a pivot toward more aggressive fiscal and monetary easing. Since late September, a series of modest stimulus measures have been rolled out, including increased fiscal expenditure and efforts to stabilize the property market. Analysts believe these steps reflect a shift in policy orientation, with top leadership prioritizing economic stabilization over structural reforms.

In its base case, BofA anticipates that the U.S. will increase tariffs on Chinese goods in 2025, raising rates from 20% to 30% in the second quarter and up to 40% by the end of the year. Should these tariffs materialize, China is expected to counter with a range of policy responses, including widening the fiscal deficit to 3.5% of GDP, increased bank capital injections, and further interest rate cuts. Additionally, the People's Bank of China (PBoC) may deploy its targeted lending tools to support the property sector, which remains a key drag on overall growth.