China reported that its economy grew by a faster-than-expected 5.4 per cent in the first three months of the year.
Growth was underpinned by solid domestic consumption and industrial output, with exports driven by factories increasing shipments to beat President Trump’s tariffs.
The growth preceded the 145 per cent tariff the United States has placed on Chinese goods. Beijing has retaliated with a 125 per cent duty on US imports in an intensifying trade war between the world’s two biggest economies that economists fear could lead to a global recession.
The 5.4 per cent growth in China’s gross domestic product (GDP) in the January-March quarter from a year earlier was unchanged from the fourth quarter, but above market expectations of a rise of 5.1 per cent. Beijing has a 5 per cent annual GDP growth target which economists have said is unlikely to be hit if the punitive tariffs stay in place.
The outlook is expected to dim as the surge in exports reverses due to tariffs and the trade war. Higher unemployment and persistent deflationary pressures are fuelling concerns over weak demand.
“Before the tariff storms hit, China’s GDP growth likely eased but remained solid, thanks to the recovery in domestic demand,” analysts at Societe Generale said in a note.
“Overall, the GDP report should show that stimulus is working, but the support will not stop here with bigger tariff challenges ahead.”
Retail sales, a key gauge of consumption, rose 5.9 per cent year-on-year in March after gaining 4 per cent in January and February, while factory output growth quickened to 7.7 per cent from 5.9 per cent in the first two months. Both figures beat analysts’ forecasts.
For 2025, economists expect the economy to grow at an annual pace of 4.5 per cent, below the official 5 per cent target.
The Swiss bank UBS has downgraded its forecast on China’s 2025 growth to 3.4 per cent from 4 per cent, on the assumption that Sino-US tariff increases will remain in place and that Beijing will roll out additional stimulus.
“We think the tariff shock poses unprecedented challenges to China’s exports and will set forth major adjustment in the domestic economy as well,” analysts at UBS said in a note.
So far this year, Chinese and Asian stock markets have outperformed Wall Street. China’s CSI 300 index is down just over 1 per cent while the S&P 500 has shed about 9 per cent. Hong Kong’s Hang Seng index is up by more than 7 per cent.
