China's stimulus spurs cautious growth upgrades at global banks as trade risks loom

Over the past month, economists at HSBC, ANZ and Citi raised projections for China’s gross domestic product growth to 4.8%, 4.8% and 4.7% from previous estimates of 4.5%, 4.3% and 4.2% respectively. That brings their expectations closer to the ambitious target of around 5% growth Beijing has set for the year.

Economists at Morgan Stanley, BBVA and Nomura aren’t quite as optimistic but have raised their projections too. The three banks now all expect the world’s second-largest economy to grow 4.5% in 2025, compared with prior forecasts of 4.0%, 4.1% and 4.0% respectively.

Some of the revisions came shortly after China last week reported surprisingly robust economic data for the start of the year, suggesting that the shift to more muscular stimulus that began last fall is paying off. During January-February, retail sales—a measure of consumer spending—accelerated, while investment and industrial production both grew more than expected.

China’s crisis-hit housing market is also showing tentative signs of stabilization after years of decline. Private data showed that sales of new homes among China’s 100 biggest property developers rose 1.2% to 188 billion yuan, or about $25.90 billion, in February from a year earlier, compared with a 3.2% fall in January.

Building on prior rounds of stimulus, Beijing this month said it will take on more government debt to bolster the economy as part of a broader policy package. That includes a sweeping plan to lift weak consumption, premised on raising household incomes and strengthening social welfare. Officials have also vowed to stabilize housing and stock markets. Details on how exactly they will do this have yet to be announced, but the tilt toward more demand-driven growth has generated some optimism.

“The government’s increased resolve to support growth, stronger and more urgent policy response to bolster domestic consumption and better-than-expected activity data are the key reasons we are more constructive on growth," economists at HSBC said in a note last week.

It isn’t just economists. For many of Goldman Sachs’s clients, China has re-emerged as a focal point for investment opportunities. Most investors believe that the Chinese artificial-intelligence story is a game changer, though some questions remain, and welcome easing regulatory pressures in the private sector, GS strategists said in a note.

“’Green shoots’ are emerging in select pockets of the economy," they said, though “policy delivery still holds the key for further gains."

Economists at BBVA pointed out that the initial tariffs imposed by the U.S. have been lower than expected. President Trump threatened to impose levies of 60% or more on Chinese goods during his presidential campaign, but has so far slapped an extra 20% in tariffs on Chinese imports.

“We cannot exclude the possibility of additional 60% tariffs on all Chinese exports in the future, which depends on China-U. S. negotiation," the BBVA economists said in a recent note, echoing many analysts’ concern that Trump’s softer-than-expected stance on China might be short-lived.

Besides the potential drag from tensions with major trading partners, many economists say the Chinese economy still faces other downside risks.

It remains unclear whether the stimulus Beijing has announced will engineer a meaningful, sustainable rebound in the beleaguered property market, economists say. Skepticism also persists over whether greater fiscal support will convince cautious households to open their wallets amid stubborn disinflationary pressures, low confidence and labor market woes.

For economists at Morgan Stanley, a reactive policy response from Beijing to Trump’s tariffs could hinder a further broadening-out of China’s growth recovery, not to mention the impact of tariffs themselves.

“We still believe the policy framework is to provide a floor to growth, rather than engineering a fast reflation with proactive stimulus," MS economists said in a note.

Write to Singapore Editors at singaporeeditors@dowjones.com