March 20 (Reuters) - Goldman Sachs ( GS ) expects

mergers and acquisitions activity to be on the upswing this year

despite the disruption caused by the U.S.-Israeli war on Iran,

CEO David Solomon said on Friday.

"While it is difficult to predict the broader economic

effects of the military action by the U.S. and Israel against

Iran, we still see the potential for a more constructive

operating environment," Solomon said in the annual shareholder

letter.

The Wall Street giant said it expects monetary easing,

fiscal stimulus in developed economies, capital investment in

artificial intelligence technologies and a more balanced

regulatory regime in the U.S. to drive M&A activity this year.

Top dealmakers have said that faster deal closings under the

Trump administration haveassuaged worries that many investors

and boardrooms had when there was greater scrutiny under the

Biden administration.

Solomon said CEOs and boards are taking a much more

front-footed approach as they feel more confident in executing

strategic transactions.

"We expect this upswing to continue though a protracted war

or another exogenous event could, of course, change the current

sentiment," Solomon said.

'U.S.-CHINA RESET NEEDED'

Solomon also called for a long-term reset in the U.S.-China

relationship. The world's two biggest economies have been

working towards easing tensions after a period of heated

rhetoric.

U.S. President Donald Trump earlier this week delayed his

highly anticipated trip to Beijing to meet with Chinese

President Xi Jinping as the ‌war with Iran drags on.

"Given how entwined they are, it is important that the U.S.

and China reach a new modus vivendi, not just for the next 12

months, but rather for the next 10 to 20 years," Solomon said.

"We believe there is a roadmap for more meaningful dialogue.

That said, it remains to be seen whether that dialogue will lead

to a significant agreement."