China’s economy grew faster than expected in the first quarter of 2025, expanding by 5.4% year-on-year, driven by a surge in industrial production and resilient domestic consumption. The robust figures, released Tuesday by the National Bureau of Statistics, have momentarily eased concerns over the country’s economic momentum but come with growing warnings about mounting external pressures, particularly from escalating US tariffs.
The first-quarter growth beat analysts’ expectations of 5.1%, matching the growth seen in the final quarter of 2024. Economists attribute the stronger-than-forecast performance in part to a rush of exports ahead of steep new US tariffs, as Chinese manufacturers accelerated shipments in anticipation of the 145% levy introduced by President Donald Trump.
Retail sales, a key indicator of domestic consumption, rose by 5.9% in March compared to a year earlier, an increase from 4.8% growth seen in the combined January-February period. Meanwhile, industrial output jumped 7.7% year-on-year in March, up from 5.9% over the first two months of the year. Analysts say this growth reflects preemptive production and stockpiling amid looming trade restrictions.
“China’s GDP growth remained solid in Q1, thanks to domestic demand recovery and front-loaded export activity,” analysts at Societe Generale noted. “However, with bigger tariff challenges now underway, Beijing’s stimulus measures are expected to intensify.”
Despite the encouraging data, economists warn that the second half of the year may paint a more sobering picture. UBS has downgraded its full-year growth forecast for China to 3.4% from 4%, citing the disruptive potential of sustained US trade actions and the likelihood of internal economic restructuring.
“Tariffs from the US present unprecedented headwinds for Chinese exports,” UBS economists wrote in a client note. “They will likely accelerate domestic economic adjustments and dampen business confidence.”
China has responded with its own retaliatory tariffs on US goods, raising fears of a prolonged and destabilising trade standoff between the two largest economies. These tensions, combined with persistent deflationary pressures and high youth unemployment, are casting a shadow over Beijing’s 2025 GDP target of around 5%.
Producer prices in China continue to decline, reflecting weaker demand across core industrial sectors. At the same time, elevated unemployment among young workers is hampering consumer sentiment and hindering broader economic recovery efforts.
“China has tools to weather external shocks,” said a senior Shanghai-based economist. “But with global trade volatility, domestic fragility, and a deflationary environment, the road ahead requires cautious policy calibration.”
As the US presidential election cycle gathers pace, with President Trump reaffirming his hardline trade stance, economists see little chance of an immediate resolution to the trade conflict. For China, balancing short-term stimulus with long-term reforms will be critical as it navigates what could be an increasingly turbulent economic year.
