With tariff reductions signalling a de-escalation of trade tensions between China and the United States, investment banks are upgrading their economic growth forecasts for both countries.
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Goldman Sachs raised its forecast for China’s real gross domestic product growth this year to 4.6 per cent, up from 4 per cent. It also upgraded its US economic growth forecast by half a percentage point to 1 per cent and trimmed the odds of a recession in the US in the next 12 months by 10 percentage points to 35 per cent.
The Wall Street investment bank also raised its expectations for the yuan’s exchange rate against the US dollar. It now expects the rate to reach 7.20 in three months, 7.10 in six months, and 7.00 in 12 months, compared with previous forecasts of 7.30, 7.35 and 7.35, respectively.
“The negotiations are unlikely to be straightforward given the substantial trade imbalance, but the strength of China’s export sector and the undervalued levels of the currency … all point to the possibility for a stronger yuan as a potential offset to tariff reductions,” Goldman Sachs analysts said in a research note issued on Tuesday.
UBS raised its forecast for China’s real GDP growth this year to between 3.7 per cent and 4 per cent – depending on the ultimate form of additional US tariffs on Chinese goods and the scale of policy stimulus implemented by Beijing – up from 3.4 per cent previously.
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“The trade war de-escalation may lead to a smaller shock on China’s exports and economic growth, as well as more modest additional policy stimulus in the rest of 2025,” Wang Tao, the head of Asia economics and chief China economist at the Swiss bank, said on Tuesday.