Investment Banks Raise China Growth Forecasts After Trade Deal

Major investment banks have revised their China growth forecasts upward following the unexpected trade agreement between Beijing and Washington announced over the weekend. Goldman Sachs, Morgan Stanley, and JPMorgan have all increased their GDP projections for the world’s second-largest economy, citing reduced trade tensions and the potential for improved business confidence, according to CNBC.

The trade agreement, which includes a pause on planned tariff increases and commitments to reduce existing duties on certain categories of goods, represents a significant shift in economic relations between the world’s two largest economies after years of escalating tensions.

Growth Projections Revised Higher

Goldman Sachs has raised its 2025 GDP growth forecast for China to 5.3% from 4.8%, representing the most substantial upward revision among major investment banks. The firm cited reduced uncertainty for exporters and the potential for improved domestic consumption as key factors supporting stronger economic performance.

“This trade agreement removes a significant headwind that has constrained Chinese economic growth over the past several years,” Goldman’s chief Asia economist Andrew Wilson wrote in a note to clients. “The reduction in tariffs and greater certainty regarding trade policy should bolster both business investment and consumer confidence.”

Morgan Stanley similarly adjusted its outlook, raising its China GDP growth projection to 5.1% from 4.7% previously. JPMorgan increased its forecast more modestly to 4.9% from 4.6%, according to Bloomberg.

Market and Currency Impacts

Chinese financial markets have responded positively to the trade developments, with the benchmark Shanghai Composite Index rising 3.2% on Monday, its largest single-day gain in eight months. The offshore yuan strengthened to 6.82 against the U.S. dollar, reaching its highest level since January.

“The market reaction reflects both the unexpected nature of the agreement and its substantive economic benefits,” said Sarah Chen, head of China strategy at UBS. “We’ve seen particularly strong performance in export-oriented sectors and companies with significant U.S. market exposure.”

Currency strategists have noted that the strengthening yuan could provide Chinese policymakers with greater flexibility in monetary policy decisions. The People’s Bank of China has maintained relatively tight monetary conditions compared to other major economies as it balances growth concerns with financial stability objectives.

Domestic Consumption Catalyst

Beyond the direct impact on exporters, analysts have highlighted the potential for the trade agreement to boost domestic consumption in China, which has remained sluggish despite the post-pandemic economic reopening. Improved business sentiment and reduced economic uncertainty could support employment and wage growth, ultimately strengthening consumer spending.

“Chinese consumer confidence has been hampered by various headwinds, including the property market downturn and employment uncertainties,” noted Michael Pettis, finance professor at Peking University’s Guanghua School of Management. “The trade agreement doesn’t resolve these structural challenges, but it removes one significant source of uncertainty.”

Retail sales data has shown modest improvement in recent months, with year-over-year growth reaching 4.8% in March, according to Reuters. Economists suggest the reduced trade tensions could help accelerate this growth if businesses respond with increased hiring and investment.

Lingering Challenges

Despite the positive revisions, analysts caution that significant challenges remain for the Chinese economy. The property sector continues to struggle with excess inventory and financial pressures, while local government debt concerns persist. These structural issues will require additional policy support beyond the benefits provided by the trade agreement.

“While the trade deal provides a meaningful boost to sentiment and removes a key downside risk, it doesn’t address the fundamental restructuring needed in China’s economy,” said Eswar Prasad, former head of the IMF’s China division. “Policymakers still face the difficult task of managing a transition toward more consumption-driven growth.”

Chinese authorities have recently announced additional measures to support the property sector, including lowered mortgage rates and reduced down payment requirements in certain cities. However, analysts note that consumer caution regarding property purchases remains elevated due to concerns about developer financial stability.

Global Economic Implications

The improved outlook for China’s economy has positive implications for global growth, particularly for countries with strong export ties to China. Commodity exporters, including Australia, Brazil, and various African nations, could benefit from sustained Chinese demand for raw materials.

“As the world’s second-largest economy and the primary growth engine for emerging markets, China’s economic trajectory has significant spillover effects,” noted IMF Asia-Pacific Department Director Krishna Srinivasan. “The reduced trade tensions support not only China’s growth but provide a more stable backdrop for the global economy.”

Economists estimate that the combined impact of stronger Chinese growth and reduced global trade tensions could add approximately 0.2 percentage points to global GDP growth in 2025, a meaningful boost in the current environment of moderate expansion.