China’s housing market continued to show price declines in December 2025, with new home prices falling 0.4% month-on-month, matching the previous month’s drop. Year-on-year, new home prices decreased by 2.7%, a slightly larger decline compared to November’s 2.4% fall. Used home prices also fell by 0.7% month-on-month, maintaining the same rate of decline as the prior month. This ongoing downward trend reflects a vicious cycle for the property market, where buyers hesitate to purchase amid expectations of further price drops.
Looking ahead, China’s broader economic data for the fourth quarter of 2025 is expected to reveal a slowdown, marking the weakest growth in three years. Forecasts suggest GDP growth of 4.5% year-on-year for Q4, which would be the slowest pace since the post-pandemic reopening. Despite this quarterly slowdown, full-year growth is anticipated to meet the official target of around 5%.
The key concern for forex traders is the composition of this growth. Domestic demand remains subdued, with retail sales growth expected to ease to a three-year low in December due to weak income growth, soft labour market conditions, and pressure from falling home prices. Fixed asset investment is forecast to record its first annual contraction since records began three decades ago, highlighting the severity of the property downturn and diminished infrastructure spending.
Conversely, industrial production is expected to have accelerated in December at its fastest rate since September. This is primarily supported by strong export demand, underscoring a two-speed growth recovery where external demand leads while domestic consumption lags.
Deflationary pressures add further complexity to the economic outlook. While real GDP growth may meet government targets, nominal growth is projected to be significantly weaker. This gap weighs heavily on corporate profits, household wealth, and fiscal revenues, factors that can influence market sentiment and currency movements.
Policy responses remain cautious. President Xi Jinping has signalled a higher tolerance for slower growth, and concerns over local government debt restrict large-scale stimulus initiatives. The People’s Bank of China has focused on targeted easing measures, such as lowering the cost of structural lending tools, but broader rate cuts are being approached cautiously. Officials acknowledge that monetary policy’s effectiveness is limited in the face of weak demand and structural economic challenges.
For forex traders, these developments suggest continued uncertainty and volatility around the Chinese yuan. The reliance on exports to sustain growth amid weak domestic demand and real estate pressures will be critical drivers to watch in 2026.
Original Source: Eamonn Sheridan of investinglive.com
