China fourth-quarter growth slows to 4.5%, weakest in nearly three years

China’s economic growth slowed to its weakest pace in nearly three years in the fourth quarter as domestic demand softened; However, despite increasing trade frictions with the United States and a prolonged decline in the real estate sector, full-year growth matched Beijing’s target.

Gross domestic product increased by 4.5% in the October-December period, according to Monday’s data from the Office for National Statistics. This marked a slowdown from 4.8% in the third quarter and was the weakest reading since the first quarter of 2023, when growth also stood at 4.5%.

Full year economic output stood at 5%, reaching the official target of around 5%.

Separate data in December showed domestic consumption weakening and the investment decline steepening, while the manufacturing sector improved.

Retail sales, an important indicator of consumption, increased by 0.9% in December compared to the previous year; It missed economists’ forecast for growth of 1.2%, slowing from 1.3% in the previous month.

Industrial production increased by 5.2% in December, above expectations for 5% growth, up from 4.8% in the previous month.

Fixed asset investment, which includes real estate, contracted by 3.8% last year; That was worse than economists’ forecast for a 3% decline in a Reuters poll.

The urban unemployment rate remained unchanged at 5.1% in December.

The world’s second-largest economy showed resilience in 2025; This was largely due to lower-than-expected tariff rates and pressure on exporters to move away from the United States, allowing policymakers to delay launching large-scale stimulus.

China reported a record trade surplus of nearly $1.2 trillion last year due to increased exports to markets outside the United States as manufacturers redirected shipments to avoid higher U.S. tariffs.

OCBC Bank Managing Director Tommy Xie said the expected downside from front-loading shipments, tighter transshipment controls and currency appreciation is limited. Xie expects China’s exports to increase by around 3% in 2026.

Economists have called for structural economic reforms to focus on increasing domestic consumption and reducing dependence on exports and investment, warning that the current growth model carries long-term risks.

“Plumping investment and weak household consumption have made the Chinese economy increasingly dependent on exports for energy growth, an untenable situation for both China and the world economy,” said Eswar Prasad, professor of trade policy and economics at Cornell University.

Beijing has tried to rein in excess industrial capacity and stop aggressive price wars. Consumer inflation rose to 0.8% in December, the fastest pace in nearly three years, while producer prices fell 1.9%.

Still, China’s GDP deflator, the broadest measure of prices for goods and services, has been negative since 2023 and is expected to fall by 0.5% in 2026, the longest streak on record, according to Larry Hu, Macquarie’s chief China economist.

The economy continues to struggle with weak domestic spending due to a prolonged real estate collapse and persistent deflationary pressures. New bank loans fell to 1 percent seven-year low This figure, which stands at 16.27 trillion yuan ($2.33 trillion) in 2025, underlines the stagnation of borrowing demand and increases pressure on the government to provide more stimulus.

The People’s Bank of China last week announced a package of credit easing measures that includes a 25 basis point cut in interest rates on various credit instruments and an increase in quotas for credit programs targeting key sectors such as agriculture, technology and private enterprises.

Economists at Goldman Sachs expect the central bank to reduce the reserve requirement rate by 50 basis points and the policy rate by 10 basis points in the first quarter.

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