UBS raised its 2025 forecast for China's economic growth from 3.4% to 4%, and predicted that China's overall consumer price index (CPI) will decrease by 0.3% for the year. The RMB exchange rate is expected to fluctuate between 7 and 7.4 against the USD for the remainder of 2025.

Both China and the US slashed reciprocal tariff rates and agreed to negotiations. UBS' latest baseline forecast assumes that the US' 30% additional tariff on Chinese goods will remain unchanged for longer, and the US' 10% tariff hike on other regions will also be maintained.

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The China-US trade negotiations might extend beyond 90 days, with China further opening its domestic market, diversifying export markets and actively advancing bilateral and regional trade talks.

It is estimated that the baseline tariff hikes may slightly drag China's economic growth down by 1-1.5 ppts, with China's exports to the US declining by about 30% in the coming quarters and overall exports falling by 6% for the year.

UBS believed that the scale of additional fiscal stimulus in China for the remainder of the year may be smaller than previously assumed and later than expected. The broker continued to anticipate a further reduction in policy rates by 20-30 bps within the year, along with more progress in property inventory destocking.

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