Global banks cut China growth forecasts as trade war deepens

SHANGHAI (Reuters) -Global investment banks are lowering their projections for China's economic growth this year as U.S. President Donald Trump's aggressive tariffs are expected to take a heavy toll on the world's second-largest economy.

Some of the banks had upgraded their forecasts for China just a month ago, encouraged by signs of improvement in the sputtering economy in the first two months of the year.

Sino-U.S. trade tensions have intensified after Trump announced reciprocal tariffs on April 2, leading to tit-for-tat duties on each other's goods. By April 11, China was all but under a U.S. trade embargo as tariffs rose to 145%.

China's full-year gross domestic product growth is predicted to hit 4.5% in 2025, compared with last year's 5.0% pace, according to a Reuters poll, falling short of the official target of around 5.0%.

China's first-quarter GDP beat expectations, official data showed on Wednesday, growing 5.4% year-on-year. Analysts had expected a 5.1% increase.

Here is a summary of some forecasts for the China's GDP.

NEW (PREVIOUS)

INVESTMENT HOUSE 2025 2026

CITI 4.2% (4.7%)

GOLDMAN SACHS 4% (4.5%) 3.5% (4%)

UBS 3.4% (4%) 3% (3%)

MORGAN STANLEY 4.2% (4.5%)

ANZ 4.2% (4.8%) 4.3% (4.5%)

SOCIETE GENERALE 4% (4.7%) 4% (4.5%)

NOMURA 4% (4.5%)

COMMERZBANK 3.8% (4.3%) 3.6% (4%)

KEY QUOTES:

** UBS

"Under our current new baseline assumptions, we estimate tariff hikes this year to pose a more than two-percentage-point drag on China's GDP growth. We expect China's exports to the U.S. to fall by 2/3 in the coming quarters and its overall exports to fall by 10% in USD terms in 2025, the latter also takes into account slower U.S. and global growth.

While tariff exemptions will likely reduce the inflationary pressure somewhat in the U.S., we expect they are unlikely to affect importers' desire to find alternatives to imports from China. Therefore, we expect continued negative impact of the tariff hikes on China's exports in 2026."

** CITI

"We see little scope for a deal between the U.S. and China after recent escalations.

Domestic policies could focus more on demand expansion. We expect additional funding of 1 to 1.5 trillion yuan ($204.81 billion) while policy implementation accelerates. The People's Bank of China (PBOC) could cut policy rates by 40 basis points and reserve requirement ratio (RRR) by 100 basis points. Policy constraints such as the exchange rate and debt management could stay, however. With prolonged elevated uncertainties, policymakers could choose to keep more powder dry."

** GOLDMAN SACHS

"Recent events have underscored the speed with which President Trump can alter tariff rates, while also highlighting the likelihood that high tariffs on Chinese goods will persist.

We estimate that 10 to 20 million workers in China may be exposed to U.S.-bound exports. The combination of extremely high U.S. tariffs, sharply declining exports to the U.S., and a slowing global economy is expected to generate substantial pressures on the Chinese economy and labour market."

** MORGAN STANLEY

"Policymakers are likely to front-load the 2 trillion yuan stimulus package announced at the National People's Congress (NPC) in the second quarter. Possible measures include modest monetary easing, front-loaded issuance and deployment of local construction bonds, a ramp-up of the consumer goods trade-in program, launch of national fertility subsidies, and faster housing inventory digestion.

With the bulk of the NPC budget being rolled out, Beijing could introduce a 1-1.5 trillion yuan supplementary fiscal package in the second half of 2025. This could include expanded quotas for trade-in subsidies, targeted support for services consumption, and enhanced infrastructure and tech investment support. Altogether, we expect the policy stimulus to translate into an additional 60-basis-point boost to growth."

** ANZ

"Despite a solid Q1 GDP at 5.4%, we see Q2 activity is immediately affected by the uncertainty in US tariff policy. Our view is that the tariff shock is caused by the unpredictability rather than the tariff itself. President Trump’s announcements have affected business sentiment and activity."

** SOCIETE GENERALE

"China's total exports could collapse by over 10% – similar to in the GFC in 2008-09. Of course, there is also an upside case of a 'pause' where domestic pressure builds in the US, forcing Trump to make a course correction.

"We assume the additional policy stimulus will reach 2.5% of GDP (RMB 3.5 trillion), spread out over a few quarters. This is entirely plausible given this is a once-in-a-century trade shock. Beyond measures to stabilise the economy in the short term, one important consensus among policymakers is that China needs to rebalance its economic model towards consumption, and the trade war is certainly going to accelerate progress on that."

**NOMURA

"Though we expect Beijing to significantly step up its efforts to replace the loss of exports to the U.S. with domestic demand, this will likely be quite challenging. China's economy faces two material drags simultaneously: the ongoing property fallout internally and the unprecedented U.S.-China trade war externally. The rapidly worsening U.S.-China trade war might also deal a further blow to the still-struggling property sector, including property markets in tier-one cities, which have been showing some signs of stabilization.

"U.S. and China are stuck in an unprecedented, and expensive, game of chicken, and it seems both sides are unwilling to back down. We expect tensions between these two mega economies to worsen significantly, especially as China has been making large strides in high-tech sectors, including AI and robotics."

** COMMERZBANK

"Beijing is committed to stronger policy stimulus this year, with strengthening consumption being the number one priority. The stimulus measures are expected to be frontloaded to support consumption, the property sector, technology innovation, and trade. The Politburo, a top decision-making body of the ruling Communist Party, is expected to hold a meeting later this month. More clues will likely be provided as well as more concrete policy steps will probably be announced after the meeting."

($1 = 7.3239 Chinese yuan)

(Reporting by Shanghai Newsroom; Editing by Christian Schmollinger, Jamie Freed & Shri Navaratnam)