Global financial institutions are adjusting their economic forecasts for China after a surprise trade agreement between Washington and Beijing, lifting expectations for both the country’s growth prospects and its equity markets.
On Monday, the U.S. and China agreed to suspend most tariffs on each other’s products for a 90-day period. Under the temporary arrangement, mutual tariffs will be cut from 125% to 10%, offering significant relief after months of escalating trade tensions.
This unexpected de-escalation follows the tariff hikes imposed by U.S. President Donald Trump on April 2, which had prompted several institutions to downgrade China’s growth outlook. Now, with the truce in place, many are revising their forecasts upward.
One major institution has raised its forecast for China’s 2025 GDP growth to a range of 3.7% to 4%, up from a previous estimate of 3.4%, citing a less severe economic shock from the reduced trade conflict. Another has increased its near-term projections, noting that companies will likely accelerate exports to take advantage of the lower tariffs during the suspension period.
Economists also expect China’s second-quarter GDP to surpass earlier projections, potentially exceeding 4.5%. Third-quarter growth is also forecast to show resilience, with temporary improvements driven by increased trade activity.
Optimism extends to equity markets, with several institutions upgrading their investment ratings for Chinese stocks. Some asset managers have even shifted funds out of Indian markets to capitalize on what they see as a short-term opportunity in China.
At the same time, market strategists are focusing on sectors that are less exposed to trade uncertainties, including consumer goods and technology.
Despite the positive sentiment, many analysts caution that this is a temporary reprieve rather than a lasting resolution. The 90-day tariff pause is not a guarantee of a long-term deal, and underlying structural issues remain, including weak domestic demand, a struggling property sector, and rising local government debt.
Some experts warn that the rebound in Chinese equities may be short-lived if the truce expires without further progress in negotiations. They also highlight the risk that tariffs could be reimposed at short notice, given the political importance of the issue in the U.S.
For now, markets have responded positively to the temporary agreement, with China’s stock indices recording modest gains. However, investors remain cautious, aware that a sustained recovery will depend on structural reforms and more concrete policy support from Beijing.
In the words of one market observer, “This is a tactical pause in the trade conflict, but it doesn’t yet signal a fundamental breakthrough. The long-term trajectory of China’s economy still hinges on domestic challenges and policy responses.”
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