Investment banks raise China's GDP forecast after tariff pause

Business Times

19-05-2025

[SHANGAHI] Global investment banks are raising their forecasts for China's economic growth this year, after Beijing and Washington agreed to a 90-day pause on tariffs, despite uncertainty around Sino-US trade negotiations.
The deal reached between the US and China after bilateral talks in Geneva last weekend surpassed market expectations, as both sides agreed to significantly roll back most of the tariffs imposed on each other's goods since early April.
The latest upgrade represents the third major revision by some banks in the past few months, largely due to rapidly evolving US trade policy under President Donald Trump and its impact on the world's second-largest economy.
In mid-April, seven investment banks had downgraded their gross domestic product (GDP) forecasts for China to an average of about 4 per cent this year, compared to their previous predictions of 4.5 per cent. China's official target for full-year GDP is around 5 per cent.
Here is a summary of some forecasts for China's GDP (new (previous)):
CITI (2025: 4.7% (4.2%))
'With trade tensions defused and domestic economy holding up well so far, we believe potential stimulus could be put on hold now.
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'We no longer expect any revision to the fiscal budget or government bond quota approved by the National People's Congress (NPC) for this year. If more support is warranted later, it is likely to come from policy banks or other quasi-fiscal tools, considering the PSL (pledged supplementary lending) rate was just cut.'
UBS (2025: 4% (3.4%))
'Lingering uncertainties may continue to weigh on corporate confidence, delay domestic capex plans, and lead to further supply chain shift outside of China.
'Front-loading of export shipments to the US may continue in the 90-day pause period, which may push up China's export growth in the near term but lead to a negative payback later this year.'
Goldman Sachs (2025: 4.6% (4 %)), (2026: 3.8% (3.5%))
'With the resumption of US-China trade talks, the left-tail risk of miscalculation between the US and China could be more contained vs. before, in our view.
'However, given still-elevated uncertainties around US-China relations, the private sector sentiment may remain fragile, and macro data could be volatile in coming months.'
Commerzbank (2025: 4% (3.8%))
'Beyond the 90-day period, it is too early to tell whether the truce will continue, and what the tariff rates will be. We also have doubts about the expansion in consumption despite Beijing's policy easing measures.
'Also, it is still unclear how the high-level plans on boosting household spending and income and supporting the service sector are being implemented at the local level. We therefore expect growth in H2 will be under pressure.'
Societe Generale (2025: 4.6% (4%)), (2026: 4.2% (4%))
'Probable export frontloading during the 90-day US-China tariff truce suggests we may not see sizeable weakening in overall economic momentum until mid-3Q. Therefore, Beijing will likely continue to withhold any significant increase in stimulus in the short term.
'There is a constant choice between maintaining economic stability and preserving policy room for worse outcomes, as the prospects of US-China negotiations remain uncertain.
'In terms of monetary policy, we are scaling back our easing calls to a 20-basis-point (bp) policy rate cut and a 50 bps reserve requirement ratio (RRR) cut by year-end, down from 40 bps and 100 bps previously.'
Nomura (2025: 4.5% (4.0%))
'The substantial tariff reduction will support a resumption of trade flows between the US and China, although its impact should not be overstated, as the remaining 30 per cent tariff could still depress exports of certain products, especially with the US economy slowing.
'The resumption of US-bound shipments will naturally reduce the need to re-route shipments. Front-loading will be inevitably followed by a significant payback effect after the 90-day pause ends on Aug 12.
'We still believe it will be quite challenging for Beijing to achieve its 'around 5 per cent' growth target unless it rolls out a sizable stimulus package. Considering the respite on the trade war, Beijing might be under less pressure to introduce the necessary stimulus and reforms.' REUTERS