China: Impact of escalating trade war on prices and growth - UOB Group

In March, China's CPI and PPI were weighed by weak consumer goods and food prices, lower international oil prices and price pressure in the export industries. Given that the downward price pressure has turned out to be stronger than expected with further economic headwinds from the trade war, we are lowering our forecast for 2025 CPI and PPI to 0% (from 0.9%) and -2.0% (from -1.2%) respectively, UOB Group's economist Ho Woei Chen notes.

China is due to release its key economic indicators for March

"Economic risks have increased sharply in the aftermath of the 2 April Liberation Day with US-China tit-for-tat tariff hikes risking deeper decoupling of trade between the two countries. The repercussion on China's export and investment will be significant. We may be looking at an impact of as high as 2% point on the GDP growth rate on a full-year basis if the exorbitant tariffs stay in place."

"We will make further assessment on the growth impact as the dust settles. China is due to release its key economic indicators for Mar and 1Q25 GDP on 16 Apr. We expect GDP growth of around 5.4% y/y in 1Q25 (4Q24: 5.4%) and our baseline growth forecast of 4.7% will be reviewed to factor in the impact of the additional tariffs."

"We expect the PBOC to frontload its monetary policy easing to stabilise markets with near-term prospects of a cut in banks' reserve requirement ratio (RRR) by 100 bps as well as the 7-day reverse repo rate by 20 bps to 1.30% by end-2Q25. For the full-year, we retain our call for 30 bps cut to the benchmark 7-day reverse repo rate (with loan prime rates to fall by 30 bps). These moves will bring the 7-day reverse repo rate, 1Y LPR and 5Y LPR to 1.2%, 2.8% and 3.3% by end-2025."