AsianFin -- Nomura Securities has warned that China’s economy could experience a sharp deterioration in the second half of 2025, as multiple indicators point to weakening demand and deepening structural challenges.
In a report released on Wednesday, Lu Ting, Nomura’s Chief China Economist, said the country is likely to face a turning point mid-year, with risks mounting across exports, real estate, and consumer spending. The bank forecasts that GDP growth will decelerate from 5.1% in the first half to 4.0% in the second.
The report flagged a “cliff-like” drop in demand, echoing mid-year turning points seen in recent years. A major concern is the weakening momentum in exports, after many companies front-loaded shipments in the first half to avoid possible tariff risks. This so-called “export overdraft” effect will weigh on the external sector through the rest of the year.
China’s property market continues to deteriorate. Now in its fifth consecutive year of contraction, the sector is seeing steeper declines in both home prices and sales. From January to May, new home starts fell nearly 22% year-on-year, while investment and transaction volumes remained sluggish. Nomura said the worsening outlook will have a substantial impact on domestic demand and household wealth.
Stimulus measures aimed at boosting consumption, such as appliance and vehicle trade-in subsidies, are losing steam. The report estimates that the contribution of these programs to retail sales growth will fall from 0.9 percentage points in the first half to 0.4 in the second. Meanwhile, deflationary pressure persists, with the producer price index (PPI) still in negative territory, squeezing corporate profits and discouraging private investment.
Nomura also cited an emerging double-bind risk, with exports and real estate—the two key growth engines of the past decade—now both under pressure. While strong export growth had previously offset property weakness, that cushion is eroding. In the second half, the economy may face simultaneous declines in both sectors, the report warned.
Adding to the strain is a new austerity regulation targeting public institutions. Enacted in May, the rules have had an immediate effect on mid-to-high-end dining and alcohol sales. Nomura expects catering retail growth to fall from 5% in the first half to just 1% in the second, dragging overall retail growth lower by 0.5 percentage points.
China has also begun to tackle industrial overcapacity with a new round of de-capacity measures, but Nomura cautioned that these efforts could become another headwind in the short term. The measures may dampen investment and reduce demand for raw materials.
To mitigate these risks, Nomura urged policymakers to accelerate structural reforms. The report calls for a decisive cleanup of property sector debt, including allowing some developers to go bankrupt while supporting those with systemic importance. It also recommends central government-led interventions to ensure delivery of presold homes or provide compensation to buyers where delivery fails.
The report also proposed reforms to China’s social security system to support consumer spending. In particular, it suggested raising monthly pensions for rural retirees—currently averaging just 243 yuan—to 400 or 500 yuan. This could enhance the purchasing power of 170 million elderly citizens and reduce long-term financial pressure on the country's 300 million migrant workers.
Fiscal reform remains another critical area. With local governments suffering from falling land sales revenue and a five-year property downturn, Nomura said China must rebalance central-local fiscal relations and provide municipalities with alternative revenue streams to support economic development.
Nomura added that structural supply-side reforms are essential to create new sources of demand and improve economic efficiency. Stabilizing market expectations and improving the business environment through reforms in taxation, social security, and property policy would also help reinvigorate private-sector confidence, the report said.
Lu’s team emphasized that China’s current slowdown reflects more than just cyclical softening; it also represents a deeper structural shift. The cascading impact of real estate weakness on fiscal health, household wealth, and industrial supply chains will continue to constrain growth unless comprehensive reforms are enacted.
Despite the warnings, Nomura maintains that China’s economy retains fundamental resilience. With well-calibrated policy support and structural realignment, the report said, the country could still maintain stable growth even amid a challenging global backdrop.
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