China’s economy grows 5.4% in first quarter ahead of full-blown US trade war
China’s economy beat expectations to expand by 5.4 per cent in the first quarter, keeping it broadly on track to meet this year’s official target even as uncertainty remains high over how the economy will fare amid an unprecedented trade war with the United States.
The closely watched gross domestic product (GDP) figures, released by the National Bureau of Statistics (NBS) on Wednesday, came in above the 5.16 per cent forecast by economists polled by Chinese financial data provider Wind.
The year-on-year growth in the first three months of 2025 was in line with the 5.4 per cent expansion recorded in the previous quarter. On a quarter-on-quarter basis, the economy grew by 1.2 per cent.
Beijing has set an annual growth target of around 5 per cent, but worries are mounting over how the country can achieve this challenging goal, which would require strong fiscal support – especially amid escalating external shocks from a tariff tit-for-tat with Washington.
Sheng Laiyun, deputy head of the NBS, said the economy “got off to a good and steady start and maintained the recovery momentum, with innovation playing an increasingly leading role”, in the first quarter.
But he cautioned that “the external environment is becoming more complex and severe, the drive for the growth of effective domestic demand is insufficient, and the foundation for sustained economic recovery and growth is yet to be consolidated”.
Yet, China’s leaders are still committed to hitting this year’s growth targets in spite of growing headwinds, Sheng said.
“We have the confidence, ability and determination to withstand external challenges and achieve our development goals,” he stressed.
Retail sales rose by 5.9 per cent in March, year on year, compared with the 4 per cent growth seen in the first two months, according to NBS data.
Beijing is placing high hopes on domestic demand – particularly consumption – to drive economic growth this year, as external pressures mount under Donald Trump’s second presidency. In a bid to spur spending, leading bodies of China’s state apparatus and the ruling Communist Party issued a 30-point plan aimed at stimulating consumer demand.
Zhang Zhiwei, president and chief economist at Pinpoint Asset Management, cautioned that although the economy beat forecasts in the first quarter, “the damage from the trade war will show up in the macro data next month”.
“Supply chains are disrupted, and ripple effects will likely show up in many countries. The uncertainty is extremely high for corporates and investors,” he said.
January-March fixed-asset investment increased by 4.2 per cent from a year earlier, versus a 4.1 per cent rise in the first two months. Property investment, a heavy drag on economic growth last year, fell 9.9 per cent in the first quarter, compared with a fall of 9.8 per cent in the first two months.
Meanwhile, private investment, a gauge of investor confidence, grew by 0.4 per cent in the first quarter of the year.
Gary Ng, a senior economist with Natixis, warned that “the persisting pressure in the property sector and geopolitics will cause a slowdown in the coming quarters”.
Front-loaded demand had propped up production and exports in the first quarter, but the full impact of US tariffs will soon be felt across the economy, Ng said.
“Unless interest rates go down much further with more demand-side fiscal stimulus, the momentum may not stay,” he added.
Investment bank Goldman Sachs said in a research note on Thursday that Beijing was expected to step up policy easing this year, including 60 basis points worth of interest rate cuts and a 4.1 percentage point increase in the “augmented fiscal deficit” to 14.5 per cent of GDP.
“However, even these significant easing measures are unlikely to fully offset the negative effects of the tariffs,” the banks’ analysts warned as they lowered their GDP growth forecasts for China to 4 per cent in 2025 and 3.5 per cent in 2026 – each down by 0.5 percentage points from previous forecasts.
Zhang said the upcoming meeting of the Communist Party’s Politburo may offer clues on Beijing’s plans for further measures to shore up the economy amid the trade war.
“I think the government will roll out new stimulus some time later this year, but not in this meeting,” he said, adding Beijing may “wait to observe the magnitude of the slowdown in exports and react accordingly”.
Washington has imposed tariffs totalling 145 per cent on Chinese imports so far this year, bringing the effective tariff rate to about 156 per cent. Meanwhile, Beijing’s new levies on US goods have risen to 125 per cent, also on top of earlier-imposed tariffs.
Elsewhere, China’s industrial output in March rose 7.7 per cent, year on year. The overall urban unemployment rate stood at 5.2 per cent in March, compared with 5.4 per cent in February.
Read More: Here