Finance

Wall Street starts to cut China GDP forecasts on U.S. trade tensions

Published

2 months ago

April 8, 2025

Trucks line up at the container terminal in the Longtan Port area of Nanjing Port, Jiangsu province, China on the evening of April 8, 2025.

Cfoto | Future Publishing | Getty Images

BEIJING — Citi on Tuesday became one of the first investment firms to lower its China growth forecast on escalating trade tensions with the U.S.

In less than a week, U.S. tariffs on goods from China have more than doubled, while Beijing has hit back with more duties and restrictions on U.S. businesses.

Citi analysts cut their forecast for China’s gross domestic product to 4.2% this year, down by 0.5 percentage point, as they see “little scope for a deal between the U.S. and China after recent escalations.”

Natixis on Monday also told reporters the firm was cutting its China GDP forecast to 4.2% this year, down from 4.7% previously.

Morgan Stanley and Goldman Sachs have not yet cut their forecasts, but warned this week of increasing downside risks to their expectation — currently both predict 4.5% growth.

China in March announced its official growth target would be “around 5%” for 2025, but stressed that it would not be easy to reach the goal.

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“The main issue is that uncertainty for the economy is rising,” Hao Zhou, chief economist at Guotai Junan International, said Tuesday in Mandarin, translated by CNBC. He noted that visibility on future growth had dropped significantly, while U.S. tariffs might keep on rising.

U.S. President Donald Trump announced an additional 50% in tariffs on Chinese goods entering the U.S. will take effect Wednesday after Beijing raised duties on all U.S. products by 34%. As part of its plan for sweeping tariffs on multiple countries, the White House last week had said it would add a 34% levy on Chinese goods.

Combined with two rounds of 10% tariff increases earlier this year, new U.S. tariffs on Chinese products in 2025 have reached 104%.

Diminishing impact from new tariffs

While an initial 50% increase in duties could reduce Chinese GDP by 1.5 percentage points, a subsequent 50% increase would drag it down by a smaller 0.9 percentage point, Goldman Sachs analysts said in a report Tuesday.

Chinese exports to the U.S. account for about 3 percentage points of China’s total GDP, Goldman said, noting that includes 2.35 percentage points of domestic value add and 0.65 percentage point of associated manufacturing investment.

China is expected to report March trade data on Monday, and first quarter GDP on April 16.

Nomura now expects China’s exports to drop by 2% this year, worse than their previous expectation of no change, the firm’s Chief China Economist Ting Lu said in a report Tuesday.

But he kept his 2025 GDP forecast of 4.5%. “Given the extraordinarily fluid situation, it is impossible to reasonably estimate the impact of the ongoing U.S.-China trade war on China’s economy,” he said, adding that his forecast already accounted for significantly worse tensions.

China this week signaled it could cut interest rates or increase fiscal spending to bolster growth in the near future.

Diminishing impact from tariffs can also feed into Beijing’s calculus that U.S. leverage is likely reaching a ceiling, Yue Su, principal economist, China, at the Economist Intelligence Unit, said in an email.

“From Beijing’s perspective, the strategic gains of a strong retaliation now appear to outweigh the associated economic costs,” she said.

Finance

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Published

1 day ago

June 6, 2025

Business Finance News

Finance

Swiss government proposes tough new capital rules in major blow to UBS

Published

1 day ago

June 6, 2025

Business Finance News

A sign in German that reads “part of the UBS group” in Basel on May 5, 2025.

Fabrice Coffrini | AFP | Getty Images

The Swiss government on Friday proposed strict new capital rules that would require banking giant UBS to hold an additional $26 billion in core capital, following its 2023 takeover of stricken rival Credit Suisse.

The measures would also mean that UBS will need to fully capitalize its foreign units and carry out fewer share buybacks.

“The rise in the going-concern requirement needs to be met with up to USD 26 billion of CET1 capital, to allow the AT1 bond holdings to be reduced by around USD 8 billion,” the government said in a Friday statement, referring to UBS’ holding of Additional Tier 1 (AT1) bonds.

The Swiss National Bank said it supported the measures from the government as they will “significantly strengthen” UBS’ resilience.

“As well as reducing the likelihood of a large systemically important bank such as UBS getting into financial distress, this measure also increases a bank’s room for manoeuvre to stabilise itself in a crisis through its own efforts. This makes it less likely that UBS has to be bailed out by the government in the event of a crisis,” SNB said in a Friday statement.

‘Too big to fail’

UBS has been battling the specter of tighter capital rules since acquiring the country’s second-largest bank at a cut-price following years of strategic errors, mismanagement and scandals at Credit Suisse.

The shock demise of the banking giant also brought Swiss financial regulator FINMA under fire for its perceived scarce supervision of the bank and the ultimate timing of its intervention.

Swiss regulators argue that UBS must have stronger capital requirements to safeguard the national economy and financial system, given the bank’s balance topped $1.7 trillion in 2023, roughly double the projected Swiss economic output of last year. UBS insists it is not “too big to fail” and that the additional capital requirements — set to drain its cash liquidity — will impact the bank’s competitiveness.

At the heart of the standoff are pressing concerns over UBS’ ability to buffer any prospective losses at its foreign units, where it has, until now, had the duty to back 60% of capital with capital at the parent bank.

Higher capital requirements can whittle down a bank’s balance sheet and credit supply by bolstering a lender’s funding costs and choking off their willingness to lend — as well as waning their appetite for risk. For shareholders, of note will be the potential impact on discretionary funds available for distribution, including dividends, share buybacks and bonus payments.

“While winding down Credit Suisse’s legacy businesses should free up capital and reduce costs for UBS, much of these gains could be absorbed by stricter regulatory demands,” Johann Scholtz, senior equity analyst at Morningstar, said in a note preceding the FINMA announcement.

“Such measures may place UBS’s capital requirements well above those faced by rivals in the United States, putting pressure on returns and reducing prospects for narrowing its long-term valuation gap. Even its long-standing premium rating relative to the European banking sector has recently evaporated.”