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Investing.com -- Goldman Sachs has cut its growth forecasts for China in response to a sharp escalation in trade tensions with the U.S.
Following President Trump’s decision to raise tariffs on Chinese imports to 125%, the bank now expects China’s real GDP to grow 4.0% in 2025 and 3.5% in 2026, down from its previous forecasts of 4.5% and 4.0%, respectively.
The increase in tariffs comes after Beijing retaliated with an 84% hike on U.S. goods. Goldman estimates the total rise in U.S. effective tariffs since Trump’s first term—from 11% to 125%—could reduce China’s real GDP level by 2.6 percentage points, including a 2.2 percentage point hit in 2025.
“We believe that achieving 4.5% GDP growth this year would be very challenging,” strategists led by Andrew Tilton said in a note.
In response to the economic pressure, Goldman Sachs expects Chinese authorities to roll out more policy support. The bank is now forecasting 60 basis points of policy rate cuts this year, up from 40 basis points previously, along with an increase in its projection of the “augmented fiscal deficit” to 14.5% of GDP, from 10.4% in 2024.
But even with these significant easing measures, strategists said they are “unlikely to fully offset the negative effects of the tariffs.”
The forecast revision also incorporates external headwinds, including weaker global demand. Slower growth in economies outside China is expected to subtract an additional 0.2 percentage points from GDP this year.
“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,” the strategists continued.
They highlight that between 10 and 20 million Chinese workers may be exposed to U.S.-bound exports.
While Goldman believes policymakers will deliver 4% real GDP growth this year, in line with the official target of “around 5%”, the bank cautions that its alternative growth indicators may come in below this level.