China’s economic growth in first quarter beats forecasts ahead of tariff impact

BEIJING - China’s economy expanded at a faster pace than expected in the first three months of 2025, though its outlook is deteriorating rapidly due to

US President Donald Trump’s massive tariffs.

Gross domestic product grew 5.4 per cent in the first quarter from a year ago, the government said on April 16, more than a forecast of 5.2 per cent.

Both production and consumption indicated unexpected momentum in March, although the data reflects economic activity before massive US tariffs on Chinese goods kicked in.

The improvement is “all in the past now”, said Ms Michelle Lam, Greater China economist at Societe Generale. “Stimulus delivery is still pretty urgent. Things can deteriorate fairly quickly, with some high-frequency data showing tariff impact on US-bound shipments.”

The impact of the trade war will likely manifest in economic activities starting from April.

Following a surge in China’s exports in March, trade activities have likely slowed rapidly in April as global companies paused orders and reduced production.

In a sign that tariff fears overshadowed the rosy quarter, Chinese stocks in Hong Kong extended their losses to as much as 2.9 per cent.

The data released by the National Bureau of Statistics (NBS) suggests the economy had a solid start in 2025 and growth accelerated in March. That was supported in part by advance shipments seeking to avoid tariffs before trade tensions spiralled in April, with Mr Trump imposing record tariffs of 145 per cent that are forecast to wipe out most trade between the world’s two largest economies. 

Industrial output expanded 7.7 per cent in March from a year ago, the fastest growth since June 2021.

Retail sales increased 5.9 per cent, the best pace since December 2023, and much stronger than the 4.3 per cent gain expected by economists.

The NBS struck a note of caution even as it released the positive indicators, emphasising the need for greater support for the economy.

“We should be aware that the external environment is becoming more complex and severe, the drive for growth of effective domestic demand is insufficient, and the foundation for sustained economic recovery and growth is yet to be consolidated,” the bureau said in a statement. “We must implement more proactive and effective macro policies.”

The government is increasingly looking at services as a potential source for growth, after previously focusing measures on boosting spending on goods.

In a work plan released on March 15, the authorities listed 48 measures to expand household spending in catering, healthcare, entertainment and tourism and sports.

“China can only count on domestic consumption,” said Dr Raymond Yeung, chief economist for Greater China at Australia and New Zealand Banking Group. “The retail sales figure is encouraging. Whether it can be sustainable depends on how fast and large the stimulus package will be.”

A meeting by the Communist Party’s decision-making Politburo at the end of April will likely provide further clues to policymakers’ thinking when it comes to the timing and size of the stimulus.

With the positive data, the risk is that officials could decide to act only when they see concrete impact on growth from tariffs. Some economists expect stimulus measures to be rolled out only later in 2025.

China could struggle to meet its official growth target of around 5 per cent in 2025 without more stimulus.

Economists at several international banks including UBS Group, Goldman Sachs, Citigroup and Societe Generale have all lowered their forecasts for China’s 2025 growth in recent weeks to around 4 per cent or lower. 

The trade war has raised expectations for Beijing to roll out more stimulus, with Chinese President Xi Jinping showing no sign of coming to the negotiating table soon, despite Mr Trump’s repeated requests.

The US and China thus far have not engaged in high-level talks, with both nations trading insults and ratcheting tariffs higher.

Some economists expect the People’s Bank of China to cut interest rates or the amount of cash banks must keep in reserve as soon as in April, while others predicted several trillions of yuan in additional fiscal borrowing and spending to fill the gap left by declined exports. BLOOMBERG