China's economy saw a surprising 5.4% growth in Q1, primarily fueled by strong industrial output and rising domestic consumption. This growth rate surpassed analyst expectations of 5.1%. However, this positive trajectory may be threatened by imminent US tariffs, which could impact exports and domestic economic stability. Retail sales rose 5.9% year-on-year in March, indicating a recovery in domestic demand, while industrial output increased significantly as manufacturers prepared for trade barriers. Despite these encouraging signs, concerns grow on the sustainability of this growth with forecasts being downgraded to 3.4% for the year ahead.
"Before the tariff storms hit, China's GDP growth likely eased but remained solid, thanks to the recovery in domestic demand," said analysts at Societe Generale.
The quarterly growth figure matched that of the final quarter of 2024, suggesting China had maintained economic momentum despite persistent deflationary pressures and concerns over unemployment.
The stronger-than-forecast GDP figures, released by Beijing on Tuesday, showed that the world's second-largest economy continued to defy global headwinds in the January-March period.
Still, there is growing concern that the pace of growth will slow through the remainder of 2025, as UBS has downgraded its full-year GDP forecast for China.
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