Next 12 Months Outlook: Our High-Conviction Calls Skewed to the Downside: The broad imposition of tariffs by the US is a structural shock to the global trading order. The tariffs themselves and the associated uncertainty will weigh notably on growth, but given the strong starting point coming into the year, we do not expect a global recession. Although the recent US inflation data did not show notable effects from inflation, we do not change our view that goods inflation will step up, and expect quarterly i ...

Investment Rating - The report maintains a cautious outlook on the industry, with GDP growth tracking below 4.5% year-on-year for 2Q 2025, down from 5.4% in 1Q 2025, primarily due to escalating tariffs impacting trade with the US [1][10]. Core Insights - The report highlights significant trade impacts from the 125% reciprocal US tariffs on China, leading to a sharp decline in shipments to the US and a notable drop in China's container throughput and freight shipping prices [2][10]. - Consumer sentiment is weakening, with rising household concerns over jobs and salaries, resulting in reduced consumption appetite and a cooling property market [3][10]. - The report suggests that while tariff de-escalation may occur in the next 1-2 months, achieving a durable resolution remains challenging due to the complexity of bilateral issues [5][8]. Summary by Sections Economic Impact - 2Q GDP growth is projected to slow significantly, with a forecast below 4.5% year-on-year, attributed to the adverse effects of US tariffs [1][10]. - The logistics data indicates a 64% week-on-week decline in ocean container bookings from China to the US in early April 2025 [2]. Consumer Sentiment - The AlphaWise Consumer Pulse Survey indicates initial signs of a secondary hit from US tariffs, with increased household concerns over job security and reduced consumption [3][19]. - Year-on-year sales of online home appliances and passenger cars have softened, and secondary housing sales have moderated more than seasonal trends would suggest [3][27]. Tariff Analysis - The report identifies low tariff elasticity for 30-40% of China's export products to the US, particularly in consumer electronics, which constitute 22% of China's exports to the US [4][21]. - The expectation is that US tariffs on China could be reduced to 60% by the end of June 2025, contingent on successful trade negotiations [5][8]. Policy Response - The report anticipates that Beijing will implement a front-loaded Rmb2 trillion stimulus package in 2Q 2025, with an additional Rmb1-1.5 trillion supplementary fiscal package expected in the second half of the year [10][32]. - As of April 2025, 36% of this year's government bond quota has been utilized, compared to an average of 20% in the past five years, indicating a proactive policy approach [10][29].