[WORLD] China’s economy grew by 5.4% year-on-year in the first quarter of 2025, exceeding economists’ expectations and reinforcing optimism about the country’s ongoing economic recovery. The latest data, released by the National Bureau of Statistics (NBS), reflects a strong start to the year despite lingering global headwinds and domestic structural challenges.
This marks a modest acceleration from the 5.2% growth recorded in the final quarter of 2024 and positions the world’s second-largest economy to meet or potentially exceed its official full-year target of “around 5%” GDP growth.
Key Drivers: Domestic Demand, Industrial Output, and Exports
The first-quarter growth was underpinned by several key sectors:
Retail sales, a measure of consumer spending, rose 6.5% year-on-year in March, showing signs of improving consumer confidence.
Industrial output increased 4.5% in the same period, driven by manufacturing and high-tech industries.
Exports surged 7.1%, partly due to a rush in overseas orders ahead of anticipated tariff changes stemming from trade tensions with the United States.
“The economy has continued to recover and grow steadily, laying a good foundation for achieving this year’s development goals,” said NBS spokesperson Liu Aihua during a press conference on Tuesday.
Government Support and Policy Easing
Beijing’s proactive fiscal and monetary policy support has played a significant role in stabilizing growth. Tax relief measures for small businesses, increased infrastructure investment, and targeted consumer subsidies have collectively boosted domestic demand.
The People's Bank of China has also maintained an accommodative stance, cutting the reserve requirement ratio (RRR) in early 2025 to ensure liquidity in the banking system and encourage lending to private enterprises.
Meanwhile, the International Monetary Fund (IMF) revised its forecast for China’s 2025 GDP growth upward to 5.0% from a previous 4.6%, citing a stronger-than-expected Q1 performance and continued stimulus. The IMF projects a gradual decline in growth to 4.5% in 2026 and 3.3% by 2029, reflecting long-term demographic and productivity constraints.
Challenges Persist: Real Estate and Trade Pressures
Despite the positive headline figures, vulnerabilities remain—most notably in China’s property sector. Real estate investment dropped 9.9% in the first quarter, extending a prolonged slump triggered by tighter regulations on developer debt and declining housing demand in lower-tier cities.
Private sector investment also remained subdued, edging up just 0.4%, highlighting persistent uncertainty among small and medium-sized enterprises.
Externally, the ongoing trade dispute with the U.S. has created friction. In March, the Biden administration introduced new tariffs on Chinese electric vehicles and technology components, escalating tensions that had briefly eased after a bilateral summit in late 2024. In response, China imposed reciprocal tariffs, increasing uncertainty for exporters.
“These trade tensions will be a drag on future growth, especially in the manufacturing sector,” noted Alicia García Herrero, chief economist for Asia Pacific at Natixis. “Still, China’s domestic market provides a cushion against global shocks.”
Employment and Inflation Trends
The job market remained largely stable, with the urban unemployment rate holding at 5.2% in March. Youth unemployment—previously a concern—has shown signs of easing, falling to 14.8% after peaking above 20% in mid-2023.
Inflation remained moderate, with the Consumer Price Index (CPI) rising 0.7% year-on-year in March. Core inflation, excluding volatile food and energy prices, stood at 1.2%, indicating tepid domestic demand but also giving policymakers room to maneuver without immediate concerns of overheating.
Market and Global Reactions
Global investors reacted positively to the upbeat data, with Asian stock markets edging higher. The Shanghai Composite Index closed up 1.3% on Tuesday, while the yuan gained slightly against the U.S. dollar.
Economists say the numbers reaffirm China’s role as a stabilizing force in the global economy amid uncertainty in the U.S. and Europe.
“China remains a key engine of global growth,” said Tommy Wu, senior China economist at Commerzbank. “However, structural reforms will be crucial if Beijing wants to maintain this momentum over the long term.”
Looking Ahead: Cautious Optimism
As the year progresses, analysts expect growth to moderate, particularly in the second half, as base effects fade and the real estate drag continues. UBS forecasts GDP growth to slow to around 3.4% by late 2025, while cautioning that additional stimulus may be needed if consumption falters.
Still, with a strong Q1 performance and multiple policy levers at its disposal, China appears on track to navigate the complex post-pandemic landscape more smoothly than many peers.
Whether this momentum can be sustained amid global geopolitical and economic uncertainties remains to be seen.
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