Investment Rating - The report has downgraded the 2025 US GDP growth forecast from 2.4% to 1.7%, marking the first below-consensus forecast in 2½ years [1][3]. Core Insights - The downgrade is primarily due to more adverse trade policy assumptions and expectations of tariff-induced near-term economic weakness, with the average US tariff rate expected to rise by 10 percentage points this year [3][5]. - Tariffs are projected to subtract an estimated 0.8 percentage points from GDP growth over the next year, with only a minor offset from tax cuts and regulatory easing [8][12]. - Core PCE inflation is expected to reaccelerate to 3% later this year, leading to a forecast of two 25 basis point cuts by the Federal Reserve [13][16]. - The medium-term growth outlook in the Euro area has improved due to potential changes in German fiscal policy, with expected growth boosts of 0.5 percentage points in Germany and 0.25 percentage points in the Euro area over the next 2-3 years [16][17]. - Despite increased US tariffs, sentiment towards the Chinese economy has improved, with expectations of a gradual rise in AI's contribution to China's GDP growth starting in 2026 [20][21]. Summary by Sections US Economic Outlook - The US GDP growth forecast has been downgraded to 1.7% for 2025, influenced by adverse trade policies and tariff expectations [1][3]. - The average US tariff rate is expected to increase by 10 percentage points, significantly impacting consumer prices and real income [3][5][8]. Inflation and Monetary Policy - Core PCE inflation is projected to rise to 3%, prompting expectations of two interest rate cuts by the Federal Reserve [13][16]. - The report maintains a dovish outlook for monetary policy in developed markets, particularly in response to tariff impacts [18]. Euro Area Growth - The report highlights an improved growth outlook for the Euro area, particularly due to changes in German fiscal policy, with expected growth boosts in the coming years [16][17]. China Economic Sentiment - Despite tariff increases, there is a noted improvement in sentiment towards the Chinese economy, with expectations of AI contributing more significantly to GDP growth starting in 2026 [20][21].

Investment Rating - The report maintains a "Buy" rating for several key stocks in the Americas Technology: Internet sector, including AMZN, UBER, and GOOGL, while highlighting a positive skew for stocks like Instacart (CART), DraftKings (DKNG), and Pinterest (PINS) based on favorable risk-reward scenarios [10][8]. Core Insights - The report identifies three key themes affecting the US Consumer Internet & Interactive Entertainment companies: increasing investment in AI, the health of the global digital consumer, and potential impacts of US policies on consumer demand and regulatory landscapes [1][2]. - There is a notable shift in AI investments from infrastructure to platform and application layers, with expectations for accelerated product launches in the next 12-18 months [7]. - The digital advertising landscape remains mixed, with strong performance in certain sectors like retail/eCommerce, while brand advertising shows signs of weakness [18][19]. Digital Advertising - Q4 results showed better-than-expected performance in digital advertising, with strong ad spend trends during the holiday season and healthy user engagement [18]. - Companies like GOOGL, META, and PINS reported notable revenue outperformance, driven by AI adoption and diversification into non-advertising revenue streams [18][19]. - The report anticipates continued focus on advertising and macroeconomic conditions into 2025, particularly regarding AI-related capital intensity and return on investment [22]. eCommerce - Q4 results in eCommerce were mixed, with AMZN outperforming peers despite high customer acquisition costs and a focus on loyalty programs [32]. - The trajectory of operating margins is expected to diverge in 2025, with AMZN and CHWY likely to maintain attractive incremental margins [32]. - Investor interest remains high regarding capital returns and potential buyback programs, particularly for AMZN [32]. Cloud Computing - AWS revenue trends were better than expected, while Google Cloud showed a deceleration in growth, attributed to capacity constraints impacting AI-related demand [39][40]. - Both companies are expected to continue investing heavily in cloud infrastructure to support AI opportunities, with a focus on return on invested capital [41]. Online Travel - The online travel sector demonstrated post-pandemic recovery, with growth rates slightly better than expectations [52]. - Key debates for investors include the normalized growth algorithm for online travel and the impact of generative AI on traffic dynamics [53]. Mobility, Local Commerce & Delivery - Q4 results in mobility and delivery sectors were generally in line with expectations, with UBER highlighting strong growth in the US market [65]. - Investors are focused on consumer spending trends, pricing dynamics, and the competitive landscape, particularly with the rise of autonomous vehicles [66].

Investment Rating - The report maintains an Overweight (OW) rating on China and Japan, a Market Weight (MW) rating on India, Korea, and Taiwan, and a downgrade to Market Weight for Indonesia while upgrading Singapore to Overweight [4][27][57]. Core Insights - The report highlights the significant impact of tariffs and AI developments on investment strategies, particularly focusing on China and Japan as favorable markets [4][19][27]. - There is a noted shift in AI investment focus from infrastructure to application layers, benefiting China, while Japan's investment case remains strong despite recent market performance [19][27][37]. Summary by Sections Investor Feedback - Recent investor discussions have centered around tariffs, AI, macro policy, and geopolitical risks, with a strong interest in China equities despite some investors holding negative views [4][5]. Tariffs - The report outlines concerns regarding tariffs, particularly the potential for reciprocal tariffs impacting Asian economies, with a key risk period identified in early April [6][12]. - A 10% universal tariff could lead to a 3% hit to regional earnings and a 4% decline in valuations, with Taiwan and Korea being the most affected [10][13]. AI - The report notes a shift in AI focus towards application layers, particularly benefiting China, with significant revenue exposure in Taiwan (74%), China offshore (55%), and Korea (44%) [19][20]. - The proliferation of low-cost, high-performance AI models is seen as supportive for market views, with a preference for sectors like internet, media, and entertainment [21][28]. China - The investment case for China is bolstered by positive AI developments and policy support, with a target for the MSCI China Index raised from 75 to 85, reflecting a 9% earnings growth forecast [27][28]. - Key themes for investment include AI applications, government spending beneficiaries, and shareholder returns [29]. Japan - Japan's investment outlook remains favorable with strong earnings growth expectations and a current forward P/E valuation of 13.4x, despite recent market underperformance [37][38]. India - The report indicates a stabilization in India's economic growth, but risks remain from small/mid-cap (SMID) exposure and potential tariff impacts, leading to a market weight rating [42][43]. Korea and Taiwan - Both markets are rated at market weight, with a focus on alpha opportunities in sectors like defense and technology, particularly in relation to Apple suppliers in Taiwan [50][51]. ASEAN - The report suggests a reset in preferences for ASEAN markets, upgrading Singapore to overweight due to its stability and growth potential while downgrading Indonesia due to economic concerns [57][59]. Key Alpha Themes - The report emphasizes the importance of identifying alpha themes within a moderately constructive beta backdrop, focusing on sectors like defense, AI applications, and quality stocks with strong balance sheets [66][71].

Investment Rating - The report indicates a positive outlook for high-tech manufacturing in China, suggesting it could become a key growth engine for the economy [4][5]. Core Insights - Recent advancements in China's high-tech sectors, particularly with the emergence of AI models like DeepSeek, have led to optimism regarding medium-term growth [4][5]. - High-tech manufacturing has significantly outperformed other manufacturing sectors, driven by strong domestic policy support and increased external demand [4][19]. - The sector has contributed an average of 1.1 percentage points (pp) to annual real GDP growth over the past decade, with expectations of continued contributions of around 1.0 pp from 2025 to 2029 [33][45]. Summary by Sections High-tech Manufacturing Performance - High-tech manufacturing has been a significant growth driver, contributing an average of 1.1 pp to annual GDP growth over the last decade, with a peak contribution of over 2 pp in 2021 [33][36]. - The sector's share in total manufacturing value added has increased from 30% in 2005 to 40% in 2024, and it now accounts for approximately 8% of GDP [12][33]. Factors Driving Growth - The outperformance of high-tech manufacturing is attributed to two main factors: increased domestic policy support and a rise in external demand, with real exports growing at an annualized rate of 8% from 2019 to 2024 [19][23]. - Key high-tech sectors, such as industrial robots and semiconductors, have seen substantial production growth, reflecting the government's push for self-sufficiency and technological advancement [15][19]. Future Outlook - The baseline scenario anticipates that high-tech manufacturing will continue to outperform the broader manufacturing sector, with expected annual growth rates of 4.8% in real terms from 2024 to 2029 [39][41]. - Scenario analysis suggests that high-tech manufacturing's contribution to GDP growth could range from 0.6 pp to 1.4 pp, depending on various macroeconomic factors and trade tensions [44][47].

Investment Rating - The report does not explicitly provide an investment rating for the industry Core Insights - The report revises baseline tariff assumptions to include higher tariffs, particularly on product-specific categories such as autos, pharmaceuticals, and critical minerals, which could lead to a significant increase in the effective tariff rate [2][9] - The expected increase in tariffs is projected to raise consumer prices and impact GDP growth negatively, with a peak hit to year-on-year GDP growth estimated at -0.8 percentage points under the new assumptions [3][28] - The report indicates a higher probability of recession, now estimated at 20%, due to the potential economic impact of larger tariffs [4][43] Summary by Sections Tariff Assumptions - The report anticipates further product-specific tariffs and reciprocal tariffs that could raise the effective tariff rate by approximately 10 percentage points, with a risk scenario suggesting a potential increase of up to 15 percentage points [2][10] - Current tariffs, including a 25% tariff on steel and aluminum and a 20 percentage point increase on imports from China, have already raised the effective tariff rate by about 3.3 percentage points [9][11] Economic Impact - The revised forecast for GDP growth in 2025 has been lowered to 1.7% from a previous estimate of 2.2%, reflecting the additional drag from larger tariffs [4][36] - Core PCE inflation is expected to rise to around 3% year-on-year under the new tariff assumptions, compared to a previous expectation of a decline to 2.1% [21][22] Policy and Market Reactions - The report suggests that the Federal Reserve may implement rate cuts in response to the economic risks posed by the new tariff environment, with two cuts expected in 2025 [47][49] - The uncertainty surrounding tariff policies is expected to have a significant impact on business investment, contributing to a more cautious economic outlook [24][28]

Investment Rating - The report suggests that Europe needs to significantly increase its military spending to address current shortfalls and match Russian military investment levels, implying a shift in investment strategy [10][71]. Core Insights - The report estimates that Europe requires an additional €160 billion annually in military spending to support Ukraine, rebuild military stock, and match Russian investment flows [66][71]. - The military spending in Europe has declined from approximately 4% of GDP to 2%, and it is projected to increase to around 3% over the next five years [6][71]. - The report highlights a significant gap in military capabilities, particularly in air defense, satellite technology, and nuclear deterrence, indicating that Europe is lagging behind both the US and Russia [36][43]. Summary by Sections Military Aid to Ukraine - Following the US announcement to halt military aid, Europe needs to double its military commitments to Ukraine from €20 billion to €40 billion annually to maintain total foreign military support [13][71]. Current Military Stock and Investment Needs - Europe has a cumulative military stock shortfall estimated between €250 billion and €550 billion, with a mean estimate of €400 billion, necessitating an annual investment of around €80 billion to close this gap [50][71]. - The report indicates that Europe’s annual military investment is currently about €30 billion less than Russia's, and this gap could widen further if a ceasefire occurs [58][66]. Comparison with Russia - The report estimates that Europe needs to increase its military spending by approximately €60 billion annually to match Russia's current military investment flow [66][71]. - It is noted that Russia has significantly increased its military production capacity since 2022, outpacing Europe in several areas [61][62]. Geographical Disparities in Military Spending - The report emphasizes that military spending increases will not be uniform across Europe, with countries like Germany, Italy, and Spain facing stronger pressures to raise their military budgets due to historical under-investment [74][76]. - The report suggests that increased military spending will likely benefit European suppliers, particularly in countries with significant military production capabilities [75][76].

Investment Rating - The report maintains a positive outlook on S&P 500 dividends, forecasting a growth of 6% year/year for 2025, with a payout ratio of 30% and dividends of $80 per share [11][12]. Core Insights - Despite a 6% selloff in the S&P 500 from its February high, dividend futures pricing has remained stable at 1%, indicating resilience amid market volatility [1][7]. - The main upside risk to the dividend forecast is the potential for excess capital return from the Financials sector due to regulatory reforms, which analysts have not yet fully incorporated into their estimates [3][22]. - The economists have revised the Q4/Q4 US GDP growth forecast down to 1.7%, which presents modest risks to the dividend growth forecast but more significant risks to EPS growth [3][30]. - Dividend futures are seen as an attractive investment opportunity for those who can withstand illiquidity and volatility, with forecasts indicating a 2% upside for 2025 futures and 7% for 2026 futures [35][36]. Summary by Sections Dividend Growth Forecast - The forecast for S&P 500 dividend growth in 2025 is set at 6%, down from a previous estimate of 7%, with earnings growth being the primary driver [11][12]. - The consensus expects the fastest dividend growth in Financials and Communication Services, while Energy and Real Estate are expected to grow the slowest [14][17]. Economic Indicators - The combination of policy uncertainty and weak economic data has contributed to the recent selloff in the S&P 500, with tariffs impacting investor sentiment [4][6]. - The ISM Manufacturing Index has declined to 50.3, while the ISM Services Index has increased to 53.5, indicating mixed economic signals [6][30]. Sector Analysis - In the first two months of 2025, 112 S&P 500 companies increased their dividends by a median of 7%, with 17% of these companies from the Financials sector [14][46]. - Analysts have noted that certain management teams may review their dividend payout ratios, which are currently just above 30% [21][22]. Potential Catalysts - Upcoming CCAR results in June are anticipated to be catalysts for the dividend market, as previous tests have led to dividend increases by participating banks [24][30]. - If large tech stocks initiate or increase their dividends, it could present another upside risk to the overall dividend growth forecast [28][29].

6 March 2025 | 12:50AM EST Global Economics Comment: Why Al Spending Is Not Boosting GDP (Briggs/Dong) ian hatzilis (1) Goldman Sachs & Co. LLC osenh briaas@as com Goldman Sachs & Co. LLC (212)357-9741 | sarah.dong@gs.co Goldman Sachs & Co. LLC Megan Peters 44(20) 7051-2058 megan | neters@gs.com Goldman Sachs International nvestors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or ...

Investment Rating - The report indicates that the investment rating for the industry remains stable, with expectations aligned with market forecasts for economic growth and fiscal targets [1][16]. Core Insights - The 2025 National People's Congress (NPC) has set the GDP growth target at "around 5%" and lowered the CPI inflation target to "around 2%", which aligns with market expectations [2][19]. - The official on-budget fiscal deficit target has been raised to "around 4.0%" of GDP, translating to a government general bond issuance quota of RMB5.7 trillion [10][19]. - The quotas for central and local government special bond issuances have missed expectations, indicating a smaller-than-expected government funding arrangement for bank recapitalization and consumer goods trade-in programs [8][16]. Economic Targets - The GDP growth target for 2025 is set at "around 5%", unchanged from 2024, while the CPI inflation target has been reduced from "around 3%" to "around 2%" [2][19]. - The fiscal deficit ratio is projected at 4.0% of GDP, with a total government bond net issuance quota of RMB11.9 trillion for the year, which is above the previous year's quota but below market expectations [10][19]. - The local government special bond (LGSB) net issuance quota is set at RMB4.4 trillion, aimed at infrastructure investment and local government debt resolution [10][19]. Labor Market - The target for new urban job creation remains at "above 12 million", consistent with the number of college graduates expected this year [9][19]. - The surveyed unemployment rate target is maintained at "around 5.5%", slightly above the current level of 5.2% [9][19]. Policy Directions - Policymakers have emphasized boosting consumption, advancing high-tech manufacturing (including AI), and stabilizing the property sector, although specific measures are still lacking [12][16]. - The government plans to increase the minimum standard of basic pension for urban and rural residents and enhance childcare services to support consumption [13][16]. - There is a commitment to reduce energy intensity by 3.0% this year, with a focus on high-tech manufacturing and digital technology adoption [12][16]. Upcoming Events - Key upcoming events during the "Two Sessions" include the fiscal budget report and interviews with key ministers, which may provide further insights into policy implementation [16][29].

Main points: China: Two Sessions Comment 2: Fiscal expansion to do (most of) the heavy lifting for stabilizing growth Bottom line: The 2025 fiscal targets unveiled during the "Two Sessions" imply the total amount of government bond net issuance quota will increase to RMB11.9tn in 2025 from RMB9.0tn in 2024. According to the 2025 budget report proposal, the MOF expects fiscal revenue growth to slow, but fiscal expenditure growth to increase, both by a moderate degree. We see downside risk to the MOF projecti ...