Market Chatter: Goldman Sachs Predicts Aggressive Stimulus from China Amid Rising US Tariffs
Goldman Sachs predicts that China will increase fiscal stimulus in response to new US tariffs, which could reduce China's GDP growth by 0.7% in 2025. Despite this, the bank maintains a 4.5% growth forecast for China, citing strong early-year performance and expected policy support. However, it has lowered its corporate earnings growth forecast from 9% to 7%. Additionally, Taiwan has been downgraded to "underweight" due to its vulnerability to US trade dynamics.
Goldman Sachs anticipates that Chinese authorities will step up fiscal stimulus efforts in response to the unexpected scale of tariffs recently imposed by the US, Reuters reported Monday.
The investment bank warned that the increased tariffs could shave at least 0.7 of a percentage point off China's GDP growth in 2025, according to the report. Goldman Sachs said that prior to the latest developments, economic momentum in China had been exceeding expectations that prompted consideration of a possible upward revision to its growth forecast.
A commentary from China's state-run People's Daily signaled the potential for more aggressive monetary policy moves, Goldman Sachs said, adding that the editorial mentioned interest rate cuts and reductions in the reserve requirement ratio could be deployed as needed, highlighting the flexibility available to policymakers.
Despite the headwinds, the investment bank maintained its GDP growth projection for China at 4.5% for 2025, citing a strong first quarter and growing expectations for policy support. However, it lowered its corporate earnings growth forecast to 7% from a previous estimate of 9%, Reuters wrote.
Goldman also downgraded Taiwan to an "underweight" due to its significant exposure to US trade flows and the market sensitivity, according to the report.
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