China surpasses growth expectations in first quarter

[WORLD] China's economy grew by 5.4% year-on-year in the first quarter of 2025, surpassing analysts' expectations of 5.1%, according to official data released Wednesday. However, the quarter-on-quarter growth was 1.2%, slightly below forecasts of a 1.4% rise and down from 1.6% in the previous quarter. Although the performance surpassed projections, economic challenges persist, including a prolonged property sector slump, weak domestic demand, and intensifying trade tensions with the United States, particularly due to new tariffs imposed by U.S. President Donald Trump. Despite these headwinds, Beijing remains committed to its full-year GDP growth target of around 5% and has indicated it has sufficient policy tools to support the economy. Authorities have pledged to lower interest rates and reduce the reserve requirement ratio to sustain growth.

The International Monetary Fund (IMF) has upgraded China's 2024 and 2025 GDP growth forecasts following the strong Q1 performance. The IMF now projects a 5% growth rate for 2024 and 4.5% for 2025, up from previous estimates of 4.6% and 4.1%, respectively. The IMF attributes this revision to robust first-quarter economic data and recent policy measures aimed at stabilizing the economy. However, the IMF also cautioned that growth is expected to slow to 3.3% by 2029 due to demographic challenges and slower productivity gains.

Despite the overall positive growth figures, certain sectors continue to face significant challenges. The property sector remains a major concern, with real estate investment dropping nearly 10% in the first quarter. Additionally, consumer prices dipped 0.1%, indicating weak domestic demand. While Beijing's efforts to stimulate domestic spending—such as subsidies for auto and appliance trade-ins—have seen some success, uncertainties around the trade war and property sector remain a concern.

Trade tensions with the United States have escalated, impacting China's economic outlook. The U.S. has imposed tariffs up to 145% on Chinese goods, prompting China to retaliate with 125% tariffs on American products. UBS forecasts that if these tariffs persist, China's growth may drop to 3.4% in 2025 and 3% in 2026, with exports to the U.S. potentially falling by two-thirds.

In response to these challenges, Chinese policymakers are implementing measures to support the economy. These include lowering interest rates and reducing the reserve requirement ratio to boost liquidity. Additionally, efforts to stabilize the property sector are underway, with steps taken to steer the sector toward a more sustainable path.