Goldman Sachs Lowers China 2025 GDP Forecast to 4.0% Amid Trade Tensions

Goldman Sachs, under the leadership of CEO David Solomon, has adjusted its projections for China's GDP growth, pointing to escalating trade tensions and potential economic disruptions as key factors. The revision underscores significant policy uncertainties and the potential for increased financial market volatility, which could impact global economic stability.

The investment bank has identified growing economic risks in China, lowering its GDP forecast for 2025 to 4.0%. This adjustment is attributed to rising tariffs and market uncertainties. The warning comes amid concerns over China's export dominance and potential economic shocks. Jan Hatzius, Goldman Sachs' chief economist, emphasized the risks of escalated production disruptions, stating that if the situation escalates to something akin to production and/or export embargos, the impact on the US economy could be severe, going far beyond just higher prices. So, China has a lot of leverage.

Goldman Sachs anticipates a prolonged economic slowdown in China, prompting expectations for more aggressive central bank policies. The market anticipates policy easing measures, potentially up to 60 basis points in cuts. Investors remain wary of potential trade embargoes and economic vulnerabilities. Geopolitical tension between the US and China continues to fuel financial market volatility, increasing investor caution.

The report draws parallels to previous US-China trade conflicts in 2018 and 2019, which resulted in global economic forecasts being adjusted without major financial crises. Past occurrences indicate potential for market resiliency. Experts highlight the potential for economic destabilization if tensions escalate, noting the role of past economic measures in stabilizing markets. The bank’s analysis underscores the need for careful policy considerations moving forward.

Goldman Sachs has recently highlighted several risks and factors influencing China’s economic outlook. The investment bank has cited escalating tariff tensions between the U.S. and China as a significant downside risk to its current 2025 full-year real GDP forecast of 4.5%. This escalation could further impact China’s GDP, particularly if a potential 50% added tariff from the U.S. is implemented. Goldman Sachs anticipates that the Chinese government will implement significant policy easing in the coming months to mitigate the impact of these tariffs and stabilize growth.

The bank also released an index showing that wages in mainland China grew by 3.9% year-over-year in the second quarter of 2025, marking the slowest level of wage growth since the pandemic years. This slow wage growth, coupled with a soft labor market, poses a key hurdle to a more sustained recovery in consumption, despite recent improvements in retail sales. The weak domestic demand and uncertainty surrounding U.S. tariffs have raised economic risks, tempering the resilience of China’s economic growth.

Goldman Sachs has raised its China growth forecast to 4.8% for 2024, anticipating that government easing measures will have a positive impact on the world’s second-largest economy. However, the bank does not foresee an immediate need for broad-based, significant stimulus from policymakers, given the current solid real GDP growth in China. The firm believes that the U.S. dollar's recent firmness shows signs of vulnerability, which may signal an eventual reversal of its tactical bounce.

The economic outlook for China is further complicated by the geopolitical tensions and the ongoing trade war. American companies operating in China have reported record-low new investment plans for the year and declining confidence in their profitability. This uncertainty, combined with the potential for further tariff escalations, adds to the risks facing China’s economic growth.