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 (NBS) on April 16. That’s better than the 5.2% consensus estimate by economists polled by Bloomberg.
Industrial output expanded 7.7% in March from a year ago, the fastest growth since June 2021. Retail sales increased 5.9%, the best pace since December 2023 and much stronger than the 4.3% gain expected by economists.
“The most pleasant surprise is retail sales which shows that consumption subsidies are working,” said Michelle Lam, Greater China economist at Societe Generale SA. “Industrial production was a beat but understandable after the strong export data. But that’s all in the past now.”
Chinese stocks largely held on to their losses before the data release, with the Hang Seng China Enterprises Index losing as much as 2.4% and the CSI 300 Index down as much as 0.8%.
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.
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The NBS struck a note of caution even as it released the upbeat data, emphasizing 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 yuan was steady at 7.3236 in the offshore market after the data was published. The 10-year government bond yield was little changed at 1.64%.
See also: China gets worst 2025 growth forecast yet with downgrade by UBS
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.
