China enters trade war on solid first quarter

Real GDP grew even faster than expected in Q1, helped by policy support and trade frontloading

This morning, China’s GDP figures for Q1-25 were published. As expected, quarterly growth dropped back somewhat, to 1.2% q/q (close to our expectation of 1.1%, consensus: 1.4%). However, due to past revisions of quarterly growth, annual growth came in a bit stronger than expected at 5.4% (consensus: 5.2%), a similar pace as in Q4-2024. Growth in Q1 was underpinned by ongoing policy support, such as the extension of the consumer subsidy programme, and a frontloading of exports in the run-up to the expected rise in US import tariffs. Last Monday, export growth came in at a five-month high of 12.4% y/y, with particularly strong exports to ASEAN.

Looking forward, from Q2 onwards we expect GDP growth to start feeling the impact from the sharp escalation of the trade war with the US, with cargo data already showing weaker activity at Chinese ports in recent weeks. Still, Trump’s recent exemptions for consumer electronics will likely soften the direct export shock to the US (see our recent update, US-China trade war: Twist and Shout). It remains highly uncertain how the US-China trade war will evolve. US president Trump recently stated that China should initiate trade negotiations, but also launched a probe on critical metals (with 70% of US rare earth imports coming out of China). We are currently reviewing our China growth forecasts for 2025 (4.3%) and 2026 (4.2%). We see both downside risks (tariff impact on industrial production/exports) and upside risks (strong Q1, more policy support). We will publish revised GDP forecasts in our Global Monthly later this month.

March data point to ongoing resilience, just before the hit from an escalated tariff war sets in

China’s macro data over January and February (most of them are typically combined given the annual changes in the timing of the Lunar New Year break) were already pointing to an improving momentum. But policy support and trade frontloading drove a further improvement of growth momentum in March. The main monthly activity data showed an acceleration and outperformed consensus expectations. Industrial production growth jumped to a post-pandemic high of 7.7% y/y (Jan/Feb: 5.9%, consensus: 5.9%). Retail sales also accelerated sharply, to 5.9% (Jan/Feb: 4.0%, consensus: 4.3%), the highest pace since December 2023. Fixed investment picked up to 4.2% y/y ytd (Jan/Feb and consensus: 4.1%). After rising to 5.4% in February, the surveyed jobless rate dropped back to 5.2%. Notwithstanding the strong macro data, property sector data remained lacklustre. Property investment is still deeply in contraction territory (around -10% y/y in March), and also residential property sales stay in negative territory as well – after a brief pick-up in Q4-24.