China Q1 GDP growth at 5.4%; outlook dims amid trade war with US

SINGAPORE (ICIS)–China’s economy expanded by 5.4% year on year on the first quarter, unchanged from the previous quarter, official data showed on Wednesday, but the world’s second-biggest economy is generally expected to weaken due to the tit-for-tat trade war with the US.

• China warns external environment becoming “more complex and severe”
• March retail sales growth strongest since December 2023
• Major banks lower 2025 growth forecasts for China

China’s economy was “off to a good and steady start,” the National Bureau of Statistics (NBS) said in a statement, as the Q1 figure was above the full-year target of “around 5%”, the same target set for 2024.

“However, we should be aware that the external environment is becoming more complex and severe, the drive for the growth of effective domestic demand is insufficient, and the foundation for sustained economic recovery and growth is yet to be consolidated,” the NBS said.

The US and China remain locked in a trade war, marked by steep tariffs: US goods face 125% duties entering China, while Chinese goods are subject to 145% tariffs upon import to the US.

The US tariffs on China include 125% reciprocal tariffs and the combined 20% imposed at the start of February and March.

In Q1, China’s value-added industrial production rose by 6.5% year on year (no hyphens), supported partly by frontloading of export orders.

Retail sales, a key gauge of consumption, rose by 4.6% over the same period, with those in March alone posting a 5.9% year-on-year increase, marking the best pace since December 2023.

Q1 fixed investment rose by 4.2% year on year in the first quarter as expansion in the manufacturing sector offset a decline in property development.

On the trade front, total value of Q1 exports rose by 6.9% year on year to yuan (CNY) 6.13 trillion while imports fell by 6.0% over the same period to CNY4.17 trillion.

For March, China’s exports jumped 12.4% year on year to $313.9 billion, a sharp acceleration from a 2.3% growth posted in January-February, as factories expedited shipments before US tariffs took effect.

TRADE OUTLOOK DETERIORATING
Citing rising trade tensions, Japan’s Nomura Global Markets Research now expects China’s 2025 exports to contract by 2.0% from a previous estimate of zero growth.

Nomura maintained its 2025 GDP growth forecast for China at 4.5%, below Beijing’s official target, anticipating policy measures will be implemented to offset the export decline.

China’s growth momentum is expected to weaken after the first quarter due to the payback from earlier export boosts, fading consumer stimulus, and “long-protracted property sector woes”, it said.

Beijing needs to be “a bit more innovative and courageous” in stimulating domestic demand to reach its GDP growth target this year, suggesting short-term fixes are insufficient, Nomura said.

Major investment houses including Citi, Goldman Sachs, UBS, and Morgan Stanley have recently lowered their respective 2025 growth forecasts, with the new estimates now ranging from 3.4% to 4.2%, based on data collected by news agency Reuters.

Swiss bank UBS on 15 April downgraded its China GDP growth forecast to 3.4% for 2025 from a previous estimate of 4%, on the assumption that tariff hikes between the country and the US will remain in place and that Beijing will roll out additional stimulus, according to a Reuters report.

The bank also expected overall Chinese exports to fall by 10% in US dollar terms in 2025.

TARIFF UNCERTAINTY PERSISTS
The White House on 15 April stated that US President Donald Trump is open to making a trade deal with China, but Beijing should make the first move.

“The ball is in China’s court: China needs to make a deal with us, we don’t have to make a deal with them,” White House press secretary Karoline Leavitt told a press briefing.

The Trump administration on 14 April imposed new export restrictions on US tech giant Nvidia’s H20 artificial intelligence chips to China, highlighting the company would require a license to export to China for the indefinite future, with concerns that “the covered products may be used in, or diverted to, a supercomputer in China”.

Trump also on 14 April launched a probe into the need for tariffs on critical minerals, the latest action in an expanding trade war that has targeted key sectors of the global economy.

The order calls for the US commerce secretary to initiate a Section 232 investigation under the Trade Expansion Act of 1962 to “evaluate the impact of imports of these materials on America’s security and resilience,” according to a White House fact sheet.

China on 14 April imposed its own restrictions on purchases on Boeing aircraft and related aircraft parts.

“While the US White House Press Secretary said that ‘the ball is in China’s court’ in terms of making the first move and offer, China would most certainly want any genuine negotiations to take place on equal footing rather than on any unilateral conditionality,” said Michael Wan, an analyst at Japan’s MUFG Research.

Chinese president Xi Jinping in currently in Malaysia from 15-17 April, as part of a regional tour which includes Vietnam and Cambodia. Xi was previously in Vietnam on 14-15 April.

In an exclusive article for Nhan Dan, the official newspaper of Vietnam’s Communist Party, published ahead of his state visit, Xi wrote that “trade war and tariff war will produce no winner, and protectionism will lead nowhere”.

Vietnam was slapped with one of the highest levels of US “reciprocal” tariffs, at 46%, although Trump has currently paused their implementation for 90 days for all countries except China.

Chinese and Vietnamese state media on14 April reported that 45 agreements were signed but the content of the agreements was not disclosed.

Focus article by Nurluqman Suratman

Visit the ICIS Topic Page: US tariffs, policy – impact on chemicals and energy.

Thumbnail image: At Qingdao Port in Shandong province, China, on 15 April 2025.(Costfoto/NurPhoto/Shutterstock)