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China: GDP growth beats expectations in Q1
Temporary factors boost output: GDP growth clocked 5.4% year on year in Q1 2025, matching the prior quarter’s reading and above market expectations. On a seasonally-adjusted quarter-on-quarter basis, GDP grew 1.2%, following the previous quarter’s 1.6% reading. In Q1, the economy was boosted by the front-loading of exports ahead of higher U.S. tariffs, plus an expanded trade-in program spurring goods consumption. That said, such strong GDP growth is unlikely to be sustainable going forward.
Softer services offsets stronger industrial output: Growth in the services sector slowed to 5.3% annually in Q1 from 5.8% in Q4, offsetting a pickup in industrial activity growth from 5.2% to 5.9%. Meanwhile, the low-weight agricultural sector lost some steam. Looking specifically at March data, the economy performed better than expected in the month, with retail, industry and investment readings all above market expectations. That said, the property sector remained deep in the red, with housing prices, sales and construction all declining.
Slowdown on the cards ahead: Our panelists expect GDP growth to slip below its Q1 level in the remainder of the year, as the boost from the trade-in scheme fades, and tighter U.S. trade and tech restrictions weigh on activity.
Panelist insight: On the outlook, Nomura analysts said:
“Though we expect Beijing to significantly step up its efforts to replace the loss of exports to the US with domestic demand, this will likely be quite challenging. China’s economy faces two material drags simultaneously: the ongoing property fallout internally and the unprecedented US-China trade war externally. The rapidly worsening US-China trade war might also deal a further blow to the still-struggling property sector, including property markets in tier-one cities, which have been showing some signs of stabilization.”
ANZ analysts said:
ING’s Lynn Song said:
“Stronger than expected March data is no doubt a welcome sign for Chinese policymakers, and offers a bit of a buffer for this year’s goal to achieve around 5% GDP growth. […]. However, assuming US tariffs remain in place for some time and the external demand picture deteriorates more noticeably in the coming months, it’s likely that more policy support will be needed.”
