China’s first-quarter GDP tops estimates at 5.4% as growth momentum continues amid tariff worries

China’s economic system expanded by a better-than-expected 5.4% within the first quarter, sustaining a robust momentum, even as U.S. tariff threats immediate main funding banks to slash the nation’s annual growth outlook.

The first-quarter GDP topped Reuters’ ballot expectations for a 5.1% growth yr on yr, constructing on a restoration that started in late 2024, because of a broad coverage stimulus push.

Retail gross sales in March rose by 5.9% yr on yr, in response to information from Nationwide Statistics Bureau on Wednesday, sharply beating analysts’ estimates for a 4.2% growth. Industrial output expanded by 7.7% from a yr earlier, versus median estimates of 5.8%.

Fastened asset funding grew 4.2% within the first quarter in opposition to estimates of a 4.1% improve in a Reuters ballot. Nonetheless, the drag from actual property worsened inside fastened asset funding, down by 9.9% for the yr as of March, whereas infrastructure and manufacturing funding picked up tempo.

The city unemployment price slipped to five.2% in March, following a two-year excessive of 5.4% in February.

The statistics bureau described the Chinese language economic system as “off to a great and regular begin” and emphasised how “innovation [was] taking part in an more and more main function.” Chinese language startup DeepSeek in January revealed its AI breakthrough that rivals tech from U.S.-based OpenAI.

However the officers warned that “the exterior atmosphere is turning into extra advanced and extreme” and that home demand remained inadequate.

“We should implement extra proactive and efficient macro insurance policies, develop and strengthen the home economic system … and actively reply to the uncertainties of the exterior atmosphere,” the bureau mentioned in an English-language launch.

The Chinese language management has set an formidable annual growth goal of “round 5%” this yr, a aim seen tougher to realize given the prospects of an escalating commerce battle and persistently lackluster home consumption.

The robust GDP growth exhibits that “the stimulus was very efficient in boosting consumption and supporting funding,” mentioned Tianchen Xu, senior economist at Financial Intelligence Unit, whereas cautioning that China has usually posts robust financial information at the beginning of the yr.

“The commerce battle 2.0, the place China and the U.S. are successfully imposing commerce embargos on one another, may have a sizeable affect on China’s export sector and CAPEX (capital expenditures) will sluggish as a outcome,” Xu mentioned.

The statistics bureau mentioned the share of China’s exports to the U.S. had declined to 14.7% in 2024 from 19.2% in 2018.

Regardless of the upbeat month-to-month information in March, “injury from the commerce battle will present up within the macro information subsequent month,” mentioned Zhiwei Zhang, president and chief economist at Pinpoint Asset Administration, noting that “excessive frequency indicators recommend exports [have] slowed sharply within the area.”

The tit-for-tat tariff battle with the U.S. has introduced whole levies imposed by U.S. President Donald Trump on Chinese language items to 145%, drawing retaliation from Beijing to lift levies on U.S. items to 125%. Such ranges of import duties are anticipated to dent China’s exports and knock a number of share factors off the economic system’s enlargement this yr.

“Growth is prone to deteriorate quickly from the second quarter given the low chance of near-term bilateral negotiations to determine an offramp for the 125% tariff hike,” a workforce of economists at Morgan Stanley mentioned in a observe earlier this week.

A number of funding banks have lower China’s growth forecasts this yr, with most economists doubting Beijing would obtain its official goal, citing headwinds from the substantial improve in U.S. tariffs on Chinese language items.

On Tuesday, UBS Group added to a sequence of growth downgrades with probably the most pessimistic forecast amongst main banks, projecting China’s economic system to develop simply 3.4% this yr as U.S. tariffs choke exports. The funding financial institution initiatives China’s exports to the U.S. to fall by two-thirds within the coming quarters, with general exports declining 10% in greenback phrases this yr.

There’s rising anticipation that Chinese language officers will launch extra forceful stimulus measures to bolster home consumption and the housing market to counter the potential commerce disruption.

“The urgency for extra coverage easing is on the rise and financial enlargement will probably do many of the heavy lifting to stabilize growth, although this must be nonetheless inadequate to completely offset the extreme exterior shocks,” Lisheng Wang, China economist at Goldman Sachs mentioned in a observe on Wednesday.

Morgan Stanley’s chief China economist, Robin Xing, expects Chinese language authorities to frontload financial easing steps within the second quarter, with a 50-basis-point lower within the reserve requirement ratio and a 15-basis-point lower in rates of interest.

Beijing is prone to speed up the issuance and deployment of native building bonds and ramp up the patron items trade-in program with broader protection or extra beneficiant subsidies, as nicely as a push for native governments to destock housing stock, Xing mentioned.

He additionally expects China to unveil an extra fiscal stimulus of 1 trillion yuan to 1.5 trillion yuan ($136.5 billion to $204.7 billion) within the second half of the yr to supply a partial offset to the tariff shock.

Talking at a media briefing following the information launch, NBS Deputy Commissioner Sheng Laiyun warned that international protectionism was on the rise and China ought to “work tougher” for its financial restoration.

China has a long time of expertise in responding to varied disaster from the Covid-19 pandemic to U.S.-China tensions, Sheng mentioned.

The U.S. tariffs will trigger sure stress on trades however China’s economic system would stay resilient, he added.