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 Donald Trump’s massive tariffs.China’s gross domestic product grew 5.4% in the first quarter from a year ago, according to data released by the National Bureau of Statistics on Wednesday. That’s better than the 5.2% consensus estimate by economists polled by Bloomberg.
Retail sales increased 5.9% in March from a year ago, the fastest pace since December 2023 and much stronger than the 4.3% gain expected by economists. Industrial output expanded 7.7%, also significantly better than expected.
Fixed-asset investment rose 4.2% in the first three months of 2025, and property investment contracted 9.9%The urban jobless rate was 5.2% in March, dropping from 5.4% in the previous month.
The data captures a period before the US hiked tariffs drastically in April, leading to an escalating trade war between the world’s top two economies. Levies on most Chinese goods have risen to at least 145%, a level likely to push China’s exports into contraction this year and damage an important growth driver.A worsening outlook for global trade and economic growth is also set to weigh on China.China could struggle to meet its official growth target of around 5% this year without more stimulus. Economists at several international banks including UBS Group AG, Goldman Sachs Group Inc. and Citigroup Inc. have lowered their forecasts for China’s 2025 growth in recent weeks to around 4% or lower.Expectations for Beijing to roll out more stimulus are rising. 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 this month, while others predicted several trillions of yuan in additional fiscal borrowing and spending to fill the gap left by declined exports.China will need to lift domestic demand fast in order to counter tariffs’ impact, including by stimulating consumption and investment. A sluggish labor market remains a key weakness that’s holding back consumers from spending, even before US tariffs hit jobs related to exports.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 this month as global companies paused orders and reduced production.The possibility of an agreement between the US and China over the trade dispute appears slim in the near future, as Beijing switched to a more combative approach in response to the latest round of tariff hikes.
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