Alessia Berardi

US midterm elections will determine control of the House of Representatives and one-third of the Senate. All 435 House seats are up for election, along with 33 regular Senate seats. At present, Republicans control both chambers: the House stands at 220 Republicans to 215 Democrats, while the Senate stands at 53 Republicans, 45 Democrats, and 2 independents who caucus with Democrats. The chamber most likely to flip is the House, given the narrow margin, while the Senate is harder to change because only one-third of seats are contested at a time.

“Against this backdrop, the most likely outcome is divided government, with the House going to the Democrats and the Senate remaining Republican. A divided government would constrain Trump’s policy options at home,” according to Alessia Berardi, Head of Global Macro Economics and Emerging Markets Strategy, at the Amundi Investment Institute.

“Historically, when presidents are faced with this, they tend to focus more on foreign policy. Therefore, the US will likely become more interventionist. Recent polling also suggests that the elections may be shaped by more than normal partisan competition, with concerns about democratic backsliding, such as attempts to sway turnout or intimidate voters, which would further erode trust in US institutions and add to political uncertainty.”

Macroeconomic implications

The macroeconomic consequences of the midterms are likely to be limited by the balance of power in Congress, and therefore by the degree of fiscal gridlock. Under the most likely scenario of divided government, the main implication is that it becomes harder to pass large new fiscal packages, including additional tax cuts.

Existing tax legislation would largely remain in place, but the political room for fresh stimulus or broad-based tax reform would be limited. As a result, the fiscal stance is likely to remain broadly neutral to mildly restrictive over time, with elevated deficits and debt still providing the underlying backdrop.

There are likely to be differences across the three scenarios, particularly in how legislation is used to support specific parts of the economy:

1. Consumers: supportive measures/redistribution. If the most likely outcome, divided government, prevails, there is little scope for additional tax cuts that would materially boost disposable income across household income groups. If Democrats gain more power, there may be more emphasis on redistribution, healthcare support, and benefits for lower-income households, which could support consumption at the margin but would not necessarily boost consumption. By contrast, a Republican sweep would increase the probability of further tax cuts, which could be more supportive of spending and growth, but also more deficit-expanding. In all cases, the effect on consumption is likely to be indirect and modest relative to the broader macro cycle which is currently driven by the tech/AI-related capex story.
2. Capex cycle: the midterms could clearly affect investment conditions. We believe the expensing and bonus depreciation provisions introduced by the current administration and already in the tax code are likely to remain in place under a divided Congress, providing a meaningful support for capex. This should continue to favour eligible equipment, machinery and software, and help broaden the investment theme beyond Tech and AI to a wider range of business investments. On that basis, we expect the capex story to remain broadly intact. A split government would make fiscal deadlock the base case, increasing uncertainty around the policy environment, debt issuance and the term premium. The risk would be greater if it heightens the chance of shutdowns or debt-ceiling standoffs, and it could limit the scale of the capex cycle or expose weaknesses in the most vulnerable parts of the economy.
3. In the context of investments, an important channel is the impact on AI-related sectors, particularly through regulation and infrastructure buildout. While the political debate around AI may become more visible at the federal level, the practical effects are likely to be felt increasingly through state and local regulation, especially in areas such as zoning, permitting, electricity access, water use, and environmental rules. That matters because data centres are a key bottleneck in the AI investment cycle. A more restrictive regulatory environment could raise costs, lengthen project timelines, and affect utilities, infrastructure, and AI-linked capital expenditure. The effect would probably be more sector-specific than economy-wide, but it could still matter for investment intentions and market valuations. It is not possible, though, to draw a very clear line between midterm scenarios: the states most exposed to AI-related regulation and infrastructure pressures are increasingly revealing a partisan tension between Democrats, who tend to favour tighter guardrails, and Republicans, who tend to prioritise innovation and faster deployment. But the issue is not purely ideological: local concerns over electricity demand, water use, zoning, and the cost of data-centre buildout can drive regulatory pushback across party lines. Thus, while a Democratic sweep could make tighter regulation more likely, this would probably focus on areas such as consumer protection, labour impacts, environmental costs, energy consumption, and local permitting. Across the broader economy, given the geopolitical priorities of the current administration, we would expect continued emphasis on innovation, competitiveness, and faster infrastructure buildout in the race for AI dominance.
4. On inflation, the direct macro impact is likely to be very limited, but there could be some effects at the level of the inflation basket. In the event of a Democratic sweep with substantial majorities, an expansion or reintroduction of Obamacare-related subsidies would remain quite unlikely, as noted above. If Democrats nevertheless secured such measures, these could affect the healthcare-related components of CPI and PCE more noticeably, especially since medical care carries a meaningful weight in both baskets. This could introduce temporary shifts in inflation levels, although the effect is unlikely to be large enough to materially change the overall inflation trajectory in the medium term.

The most probable post midterm outcome is divided government, which would constrain legislative ambition at home while leaving the executive branch largely in control of the core policy agenda. The macro significance of that outcome lies mainly in fiscal deadlock rather than a major change in policy direction, with a higher risk of government shutdowns, more budget brinkmanship, and a higher policy uncertainty premium.

What could be the impact of the midterm elections on US assets and sectors?

The IT and energy sectors have been the strong outperformers since President Trump’s second election victory. Communication services and utilities have been the underperformers, and though part of this is due to the lower beta of the sectors in a rising market, these two are also the only sectors to have recorded a negative alpha over the period.

Will the winners of the first half of Donald Trump’s second term be the losers after the midterms? That is possible in certain sectors. Artificial Intelligence could face a tougher regulatory regime if Congress swings back to the Democrats, though the President has made clear his opposition to slowing down technology through regulation. We expect investment to continue, however, with technology being more of a driver than politics. This will support IT, and sectors like industrials and materials could benefit from a broadening in the investment trend.

The impact on the energy sector could be mixed. Opposition to renewable energy could wane if Democrats gain ground in Congress, potentially making renewables more competitive with fossil fuels. At the same time, a more interventionist US in case of a divided government could lead to prolonged tensions in the Middle East, keeping energy prices higher for longer.

Any change in direction for the energy sector would also be relevant also to utilities, given the negative correlation between the performance of the two sectors since the start of the second quarter this year.

Healthcare has suffered due to President Trump’s comments on drug prices, even though the President has complained more about foreign consumers paying too little, rather than domestic consumers paying too much. We think the sector could rebound as a result. A Democrat-dominated Congress could launch investigations into the healthcare insurance sector, however, given voters’ ire over this sector.

The performance of financials will depend on regulation, but also on the direction of bond yields and the cost of risk. Regulation is probably more in the hands of the Fed than of Congress, and the trend may not be affected by the midterm elections. Under a divided government, however, progress on reducing the deficit may be extremely halting. As a result, the yield curve could steepen, increasing net banking margins. It could also keep real growth strong and prevent an increase in the cost of risk, helping financials improve their performance relative to the rest of the market. By contrast, further increases in nominal interest rates are likely to continue to put pressure on the real estate sector.

Markets are pricing gridlock without relief

Pricing around the 2026 midterms does not simply reflect rising uncertainty – it reflects a repricing of the baseline. Divided government, the September consensus, has given way to a higher probability of a Democratic sweep. Markets are not just more nervous; they are starting to price a different political world.

That shift has a political logic. The macro backdrop remains supportive: orderly markets, resilient growth, and a growing wealth effect. But the factors that decide midterms – purchasing power, gasoline prices, household sentiment and approval among swing voters – have not improved, and the Iran conflict has compounded these pressures. Trump’s political capital looks fine in aggregate, but it is weak precisely where elections are won.

A Democratic House is now close to fully priced. While prediction markets increasingly favour a Democratic sweep, our central scenario remains a divided congress, reflecting our assessment of the electoral map and the remaining uncertainty round the Senate races. A Democratic Senate would control judicial and Fed confirmations, constraining the White House in ways that go well beyond committee subpoenas.

Political and policy baskets complete the picture

Republican policy exposure has weakened dramatically, but assets sensitive to a Democratic agenda are not rallying either. Instead, markets are converging on a simpler view: whoever wins, ambitious policy is off the table. Markets already price constrained fiscal ambition, moderate trade tension and continued immigration enforcement through executive authority.

Uncertainty is also visible in the options market. Implied equity volatility for the post-election expiry has risen sharply above that for the pre-election expiry, signalling a prolonged period of policy digestion after the vote.

Rising rates complicate the picture, raising the cost of fiscal confrontation. Shutdowns, debt-ceiling brinkmanship, and budget gridlock under a Democratic Congress are greater risks. In prior cycles, gridlock was a relief trade. At current yield levels, it may not be.

The larger post-election question is whether a constrained White House responds with moderation or turns to executive tools – tariffs, China policy, immigration, Fed pressure – more aggressively than markets currently assume. That is the risk not yet in the price.

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Alessia Berardi

The European Union and India have concluded negotiations on a landmark free trade agreement (FTA), marking a major milestone nearly two decades in the making. Once ratified, the deal is expected to enter into force in early 2027.

Already, the India-EU trade is substantial, with the latter being India’s second largest trading partner. Bilateral goods trade between the two stood at €120.2bn and services trade at €66.6bn, for the year 2024. Indian exports to the bloc totaled €108.8bn.

Alessia Berardi, Head of Global Macroeconomics at the Amundi Investment Institute notes “EU’s automobile manufacturers will gain better access to a market long dominated by domestic and Japanese brands. The EU’s share of India’s car market currently stands at just 4%, suggesting significant potential upside for European exporters.  

“Agricultural sector is a sensitive issue for both the EU and India but the EU received concessions on some agri-foods such as alcoholic beverages, with additional benefits on consumer staples products.

“Notably, tariffs on imported alcoholic beverages and wine will drop from 150%, providing a substantial opening for European producers, particularly from France, Italy, and Spain.”

The agreement’s timing is strategic: it reinforces supply-chain diversification away from China, hedges against U.S. tariff uncertainty, and underpins Europe’s effort to secure trusted partners in a more fragmented global economy.

She adds, “The agreement also illustrates the growing importance of “middle powers” in a more fragmented international system, where influence is increasingly exercised through diversified partnerships rather than tight bloc alignments. With great power competition among the US, China and Russia intensifying, states such as India and the EU’s larger members are using trade, technology and security agreements to preserve strategic autonomy and avoid over dependence on any single partner.”

In this context, the India–EU FTA functions as a hedging and diversification tool for both sides: Brussels gains a scalable, democratic partner in Asia to underpin economic resilience and clean tech supply chains, while New Delhi reduces exposure to volatile US tariff policy and to China centric manufacturing networks.

Recent analysis of global influence trends suggests that while traditional superpower reach has plateaued, middle and mezzanine powers are expanding their room for manoeuvre by multiplying cross regional agreements and issue specific coalitions. The parallel push by countries like Canada to deepen ties with India in areas such as critical minerals, uranium and LNG, partly to lessen dependence on the US market, fits the same pattern of middle power diversification.

For India, whose oil imports from Russia remain significant at around 1.3 million barrels per day despite declining from peaks near 2 million, this strategy is about balancing long standing relationships with a wider set of economic and political partners.

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In this role, Alessia will oversee global macroeconomics – Developed and Emerging Market macro themes – and maintain the responsibility of Emerging Markets Strategy.

She is a member of Amundi’s Global Investment Committee.

Alessia began her career in the financial industry in 1998, covering the main Developed Markets economies. Since 2013, she has been leading the London Research branch of Amundi with specific focus on Global Emerging Markets, covering the different geographies from Macroeconomics to Asset Classes. She was appointed Head of Emerging Macro Strategy Research at the Amundi Investment Institute in 2022.

Alessia graduated in Econometrics from the University of Pavia in 1998.

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Elodie Laugel

Amundi, Europe’s leading asset manager^[1] has shared its Responsible Investment Views for 2026 setting out how geopolitical realignments and accelerating climate and technology trends will reshape investment priorities and allocations for the year ahead.

In 2025, fixed income led a normalisation in responsible investment and equity demand shifted from restrictive screens toward low‑tracking‑error approaches. The recalibration of climate coalitions intensified stewardship and corporate focus on adaptation has risen.

Elodie Laugel, Chief Responsible Investment Officer stated: “Responsible investment is moving from aspiration to execution. Expectations for stewardship, especially in Europe, continue to intensify. There is a growing emphasis on directing capital toward climate solutions that deliver measurable, real‑world impact. In 2026, the focus will extend beyond transition plans to core issues of resilience and natural‑capital preservation. As physical risks rise and energy systems transform at unprecedented speed, what will set leaders apart is not ambition, but the ability to act – decisively and at scale – to secure strategic autonomy and lasting financial resilience.”

Amundi highlights six convictions for 2026:

1. The clean‑energy bottleneck has shifted from capacity additions to system integration

Global electricity demand is accelerating, IEA expects 4% growth through 2027, adding 3,500 TWh, with >90% of this growth coming from renewables. The carbon intensity of listed companies fell by roughly 8% year-on-year globally, leaving the inflection point for peak energy related emissions uncertain. As renewables are increasingly cost-competitive, the binding constraint is now grids, flexibility, storage and faster connection that need to be facilitated by policies (permitting, connection queues, market rules). For investors, end user affordability is an increasingly material factor to monitor, since integration failures or regulatory delays can raise bills and slow adoption.

2. Strategic-autonomy efforts are fragmenting the energy landscape

Governments are reshoring critical supply chains, from clean-tech and critical minerals to parts of the fossil value chain, to boost resilience. Europe prioritizes speed: rapidly expand grids, flexibility and domestic clean-tech or face higher costs and lower autonomy. The US uses incentives and localization but sends mixed signals: load growth from AI and electrification drives capacity needs, while volatile gas/LNG markets and export-driven infrastructure risk price pressure and lock in. Asia, led by China, already dominates cleantech manufacturing; for many Asian countries the case for a sustainable energy transition is clear and offers climate resilience, energy independence and economic opportunity.

3. Climate adaptation is now an imperative for investors, and on an equal footing with transition

Investors are prioritizing adaptation as climate impacts mount, and 60% of corporates expect significant financial impacts from physical risks in the next five years 8. To better manage risks while pursuing decarbonization goals, investors must embed climate-risk analysis, including supply chain exposures, into due diligence and asset allocation, and prioritize development of localised, asset level, tail risk adaptation metrics, which are still underdeveloped.

4. Natural capital is the new responsible investment darling, for good reasons

Global nature finance totals $200bn annually but must triple by 2030. Private capital, currently just 18% of flows, is critical to scaling investment9. The most direct path for investors lies in real assets like forests, farmland, and water rights, which deliver returns through sustainable use (carbon credits, timber, agriculture) and are increasingly integrated into advanced portfolios. To accelerate growth, financial instruments like green bonds, debt-for-nature swaps, and impact bonds can channel additional capital into these assets. Both channels can offer compelling risk-adjusted returns with impact.

5. AI is redefining responsible investing, from data to labor markets

AI is improving sustainability analysis, speeding data ingestion and adding new qualitative insights, but also risks widening social gaps and workforce disruption, especially in ageing exposed sectors. Opportunities are likely to be found in integrated health/care platforms, robotics/automation for labor scarce services, and age inclusive digital infrastructure. 2026 will also crystallize AI regulatory fault lines, such as ethics and regional divergence, forcing investors to shift capital toward socially and economically useful use cases.

6. 2026: A window to align responsible investment products with investor preferences

Strong stated retail demand, particularly from younger investors, is being held back by advisory frictions, unclear product labels and complex disclosure. In Europe, 2026 could be a turning point: SFDR 2.0 combined with technical alignment of MiFID II and IDD, can simplify labels and lower advisory complexity to unlock retail participation, provided product categorisations deliver a genuine product market fit.

Read the report.

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Notes:
[1] No 1 European asset manager based on global assets under management (AUM) and the main headquarters being based in Europe Source: IPE “Top 500 Asset Managers” published in June 2024, based on assets under management as at 31/12/2023

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Monica Defend

The global economy is adjusting to a regime of ‘controlled disorder’, where a tech revolution is reshaping an already multipolar world faced with geopolitical tensions and fiscal concerns, according to Amundi, Europe’s largest asset manager.  Geopolitics, the policy mix and higher inflation have become structural factors, and these concurrent long-term shifts will alter how the economic and financial cycle unfolds in 2026.

In its 2026 global investment outlook, the firm notes “The cycle keeps extending, supported by perceived ample liquidity, easing monetary policies, industrial policy shifts, and –so far– low pass-through of tariffs in the economy.  Multiple factors could reverse it, spanning from adverse events related to high levels of public debt in major economies, high market concentration and valuations, the credibility of central banks and where real rates may stabilise.

“Massive AI and Tech-related capex and a decent outlook for earnings could keep valuations higher for longer, but the shifts at play also point to higher structural risks and unpredictable turns in trade and capital flows.”

Monica Defend, Head of Amundi Investment Institute, says “The global economy is adapting to a new regime of “controlled disorder”.  Tech-led transformation, fiscal stimulus and industrial policy are keeping activity alive and leading to the emergence of new winners. Inflation becomes a structural theme investors must also factor into their allocations”.

Vincent Mortier, Group CIO of Amundi, adds “Diversification remains the most effective defence in a world of concentrated equity markets and high valuations. Investor portfolios must rebalance across styles, sectors, sizes and regions to mitigate risks and capture opportunities, notably in Emerging Markets and European assets.”

They note the following.

Central scenario: A transition, not a downturn

 In 2026, dovish central banks and global investment in tech, defence, and infrastructure, should continue to inject momentum into a phase of the cycle that would otherwise begin to slow.

• Global growth is moderating but proves broadly resilient, thanks to innovation led by capex and policies aimed at strategic autonomy.  Inflation risks persist due to pro-cyclical policies, ceaseless reconfiguration of supply-chains and challenges from the energy transition. Broadly appropriate monetary policy is increasingly pressured by fiscal dominance.  We forecast global GDP growth at 3.0% in 2026 and 3.1% in 2027 (from 3.3% in 2025), with DM at 1.4% and 1.6% on average, and EM at 4.0% and 4.1%.
• US growth should experience a shallow slowdown in the coming quarters, before picking up to reach 1.9% in 2026 and 2.0% in 2027, remaining below potential.  The current pace of AI and Tech-related investment seems unsustainable and should moderate before broad productivity gains materialise. Consumption should remain a key driver of the economy but moderate, due to above-target inflation, weaker income and labour market dynamics, where evidence shows that low-income households are facing constraints on affordability.  We expect the Fed to cut twice in the first half of 2026, to 3.25% and the USD to weaken, but the journey will not be linear.
• In Europe, we expect growth to remain below potential at 0.9% in 2026, then to recover at 1.3% in 2027, both in the Eurozone and in the UK.  The European journey depends on domestic demand, monetary-policy support and on the effective implementation of prospective reforms.  The aim of the latter is to transform the macro-financial system and to drive private investment towards strategic autonomy over the medium term.  The German plan is a game changer, but the region’s aggregate fiscal stance should stay neutral as high debt levels and fiscal rules push many countries towards consolidation.  Higher defence spending could further support the recovery.  We anticipate the ECB will ease beyond current market expectations, to 1.5% by mid-2026, and the BoE will bring down rates to 3.25%.
• Emerging Markets assets offer broad opportunities. EM has benefited from easier global financial conditions, balanced domestic policies and front-loaded export demand in 2025.  Growth will likely stabilise but keep outpacing that of developed economies.  Cautious monetary easing should continue, with no signs of fiscal dominance.  Asia will remain the primary growth engine, despite moderating growth in China (4.4% and 4.2%) and India (6.3% and 6.5%).  In LatAm, a series of elections could usher in more business-friendly administrations.  Structural forces are also at play: geopolitical realignment, supply‑chain reconfiguration and an intensifying technological race, in which Asia stands out.
• Risks to our central scenario stem from multiple fronts.  They are significant on the downside, but we also see some upside.  Adverse (geo)political or financial shocks – including fiscal dominance or financial repression – could trigger a market downturn, for example by de-anchoring expectation as to what level inflation or interest rates will stabilise, by disappointing on business performance or investments, or by tightening liquidity.  Conversely, reduced geopolitical or tariff tensions, higher fiscal- or deregulation-led investments or broader signs of AI-related productivity gains would improve the outlook.

Investment implications: Diversifying in an era of controlled disorder

Under the assumption of no economic recession in 2026, our call is moderately pro-risk.  Our allocation seeks to play growth through the tech-led recovery globally while diversifying into low‑correlated themes and a range of strategic hedges.

• In Fixed Income, we see a continuation of the diversification trend and are mindful of risks stemming from imbalances in the US.  The current backdrop calls for a tactical approach to duration and a neutral-to-slightly-short stance on sovereigns.  Quality credit becomes a core allocation for fixed income investors to diversify away from Treasuries, and it is clearly overweight.  We remain cautious on US High Yield and Japanese government bonds.  A positive stance on European bonds remains a key call for 2026, with a focus on peripheral bonds and short maturities, UK Gilts and investment grade credit, particularly in financials.  While sticky inflation calls for seeking opportunities in inflation break-evens.
• In Equities, sector and style allocation will drive performance in 2026.  We favour exposure beyond the AI-race into the broadening tech theme – including power energy, computing, materials needed to overcome physical constrains that are building – and a combination of defensive and cyclical themes.  We are overall neutral on US equities despite the Fed’s procyclical stance and will add on our equal-weighted approach given market concentration and high valuations.  European industrials and infrastructure should provide new entry points in H2 2026 to benefit from a structurally weaker USD and longer-term themes (defence spending, electrification and repatriation of assets from the US) and revived interest in the Eurozone if the German plan materialises and reforms advance. We are positive on European Financial, Industrial, Defence and Green-transition sectors, as well as on small and mid-caps.  Europe can still play the tech cycle through Industrials and Capital Goods.  We also seek opportunities into the expanding Asian tech ecosystem.  Japan can also benefit from the corporate reform and weaker Yen.
• We are overall positive on Emerging Assets.  EM bonds stand out for high income and diversification, while EM equities offer a diversified set of opportunities.  We like attractive yields in Hard Currency debt.  In Local Currency debt, we favour Central and Eastern Europe, selective parts of LatAm (Columbia, Brazil) and Asia (India, Philippines and Korea) for carry and valuation.  We are positive on EM equities and see notable pockets of opportunities favouring value and momentum styles in LatAm and Eastern Europe and selectively in Asia, in sectors linked to digital assets.  In Chinese equity, we expect to move from neutral to select positions in the tech sector and areas of clear comparative advantage (EV supply chain, renewable energy).  We are positive on India with a medium term horizon where the ‘Make in India’ transformation offers long term growth potential in many fields (manufacturing, consumption, infrastructure, global supply-chain shifts, financial inclusion technologies).  Key risks across EMs are a stronger US dollar and higher US Treasury yields.
• Diversification & Hedges. For real-return resilience, we favour greater allocation to alternative income and inflation hedges in real assets.  Private credit and infrastructure are well positioned to benefit from structural themes such as electrification, reshoring, AI, and robust demand for private capital, particularly in Europe.  Diversification should also structurally include a broader commodities exposure, in particular to gold, and selected currencies such as JPY, EUR, and emerging currencies that may benefit from a weaker dollar.  We favour high-carry currency such as the Brazilian Real or South African Rand and Asia.

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Clarity regarding the administration’s tariff plan with China should instead arrive in mid-August. Additionally, the recent tariff letters include, explicitly or implicitly, a clause imposing higher tariffs on transshipping. For example, Vietnamese-origin cargo considered to be transshipped goods will be subject to a 40% tariff – the current level applied to China.

“While final tariff levels remain highly uncertain, it is worthwhile to begin assessing their impact on growth through trade channels across countries,” notes Alessia Berardi, Head of Emerging Macro Strategy at the Amundi Investment Institute.

“Asia is particularly affected. Despite the challenges in enforcing transshipping tariffs, medium and small open economies in the region face significant growth impacts, as they bear among the highest tariff rates in the new letters of intent.

“However, the situation remains fluid. Indonesia is a case in point, seeing a tariff reduction from 32% to 19% on the back of a deal to lower its own tariffs on the US and reduce its trade surplus. Japan also managed to reach a deal a few days after its upper house election, lowering the tariff from 25% to 15%.

“Regarding Europe, the implementation of higher tariffs from 1 August is likely to cause a contraction in economic activity, potentially reducing growth by an additional 0.3% to 0.4% through the trade channel between the second half of 2025 and the first half of 2026.

“With the latest tariff letters, the effective average tariff rate in the US is expected to rise from the current 15% to a range of 17% to 20%. This increase could negatively impact US GDP by approximately 0.4% and raise the core Personal Consumption Expenditures inflation rate by about 0.2%. Concerning inflation in the rest of the world, in the absence of significant retaliatory measures, persistent supply chain disruptions, and weak currency trends, price dynamics are expected to remain subdued due to weaker demand,” she said.

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What are the the risks and rewards of investing in China?

The outcome of US-China trade talks this past weekend exceeded expectations according to Amundi, Europe’s largest asset manager.

As a result, Amundi has upgraded its forecast for China GDP growth to 4.3% in 2025 and 3.9% in 2026, from 3.9% and 3.7%, respectively.  However, this upgrade does not fully restore the 4.4% growth forecast Amundi had at the start of 2025.

Claire Huang, Senior Emerging Markets Macro Strategist, Amundi Investment Institute noted, “While the tightening in global financial conditions was brief and has since normalised, the uncertainty surrounding trade policy remains elevated, continuing to weigh on private sector confidence and is likely to have lasting effects.”

The outcome of the weekend talks significantly reduces the probability China will initiate additional fiscal stimulus in Q3.

“Amundi no longer expects major measures in the very near term as the 90-days pause buys enough time through mid-August.

“Amundi maintains its forecasts that PBoC will proceed with two additional 10bp rate cuts in July and September. As April CPI/PPI shows, deflationary pressures have been persistent, and further monetary easing is much needed regardless of the results of the negotiations,” she added.

“Onshore A-share equity market does not fully price in this outcome, but further upside will be limited since valuation has nearly returned to levels pre-Liberation Day.

“Amundi expects RMB to range bound. Near term the outcome is positive for RMB to rally. However, the outcome is also positive for the US dollar, which could reverse some of its sell-off in past month.” 

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