UBS downgrades China growth forecast on tariff impacts
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The news: UBS has followed Citi and Goldman Sachs in downgrading China's growth outlook, predicting that the world's second largest economy will expand 3.4% this year, down from its previous forecast of 4%.
The numbers: UBS had expected that the US would raise tariffs on China by around 60% since late 2024. However, given the recent rounds of retaliation, the tariff hike outcome of around 145% was more than double the bank's original forecast.
UBS expects China's aggregate imports to fall 11% in 2025 and exports to drop 10% year on year, given US exports could fall by two-thirds.
The context: UBS' China economics team noted that if Chinese authorities don't roll out new policy stimulus, the outlook could be even weaker.
They expect China's consumer price index (CPI) to turn sharply from no inflation, to deflation. After China's CPI edged up 0.2% year on year in 2024, they see a decline of 0.5% year on year in both 2025 and 2026.
The analysts also expect the Chinese yuan to weaken modestly against the US dollar, implying China will export goods deflation to the rest of its trading partners.
The source: UBS research
