(Reuters) – China’s economy grew 5.4% year-on-year in the first quarter, data showed on Wednesday, surpassing estimates, but a trade war with the United States has cast a shadow over the outlook and raised pressure on Beijing to roll out further stimulus.
Analysts polled by Reuters had expected first-quarter gross domestic product (GDP) to expand 5.1% from a year earlier, slowing from 5.4% in the previous three months.
U.S. President Donald Trump has ratcheted up tariffs on Chinese goods, prompting Beijing to slap retaliatory duties on U.S. imports in an intensifying trade war between the world’s two biggest economies that markets fear will lead to a global recession.
KEY POINTS
* Q1 GDP +5.4% y/y (forecast +5.1%, Q4 +5.4%)
* Q1 GDP +1.2% q/q (forecast +1.4%)
* March industrial output +7.7% y/y (forecast 5.8%)
* March retail sales +5.9% y/y (forecast +4.2%)
* March fixed asset investment +4.2% y/y (forecast +4.1%)
* January-March property investment -9.9% y/y
MARKET REACTION
Both the blue-chip CSI300 Index and the Shanghai Composite Index were down nearly 1% by midday after the data release. COMMENTARY
ZHIWEI ZHANG, CHIEF ECONOMIST AT PINPOINT ASSET MANAGEMENT, HONG KONG
“China’s economy grew faster than expected in the first quarter. March activity data also accelerated across the board, which is consistent with the strong export data released earlier. The damage from the trade war will show up in the macro data next month. High-frequency indicators suggest exports slowed sharply in the region. Supply chains are disrupted, and the ripple effect will likely show up in many countries.
“The upcoming Politburo meeting will shed light on how government policies react to the trade war. I think the government will roll out new stimulus later this year, but not in this meeting.” CHARU CHANANA, CHIEF INVESTMENT STRATEGIST, SAXO, SINGAPORE
“The upbeat print masks underlying fragilities. Much of the strength likely reflects frontloading of exports ahead of the U.S. tariff hikes that kicked in this month. With levies now raised to as much as 145% on Chinese goods, the risk is that export momentum fades quickly, dragging down industrial activity.
“Markets seem to be looking past the first-quarter print, focusing on the challenging external environment and the fading effects of earlier consumption support.”
ZICHUN HUANG, CHINA ECONOMIST, CAPITAL ECONOMICS
“China’s economy regained some momentum in March due to fiscal support, which helped the first-quarter GDP figures beat expectations. But this wasn’t enough to deliver faster growth over the quarter as a whole. And with exports set to weaken, growth is still on course to slow this year.
“Policy support should continue to shore up domestic demand over the coming months. The budget announced in March allows for a further ramp up in fiscal spending. And further monetary easing is likely to happen soon, perhaps as early as next Monday.”
RYOTA ABE, ECONOMIST, SMBC, SINGAPORE
“The slower quarter-to-quarter growth may suggest that the recovery of the domestic demand was not strong. In case the U.S. tariffs imposed on the Chinese goods remain, the momentum will likely be weaker than the first quarter. With this, we now expect the Chinese authorities to announce further stimulus measures to prop up the domestic demand further to encounter the adverse impact of the tariffs.”
MATT SIMPSON, SENIOR MARKET ANALYST, CITY INDEX, BRISBANE
“While China’s growth figures would usually be bullish for sentiment, they have been overshadowed by Trump’s trade war – as the impact is yet to show up in the data. We also have a Powell speech looming that tends to dull volatility a tad.”
XING ZHAOPENG, SENIOR CHINA STRATEGIST, ANZ, SHANGHAI
“The data looks encouraging, as growth may help close the output gap. It also explained why the authorities did not cut RRR. Both external and domestic demand were good in the first quarter. Retail sales remained extremely strong despite negative price effects. Fixed Asset Investment (excluding property) is recovering well, in line with double-digit growth in excavator sales and working hours.” WOEI CHEN HO, ECONOMIST, UOB, SINGAPORE
“The data is very strong for March … and it was mainly because of manufacturers trying to get the orders out before the tariff.
“It’s hard to make a call on the growth prospects from here because you see a very strong fund loading that is supporting the first-quarter GDP. Retail sales are unlikely to be sustained, if we have all the negatives coming in and the property market is still in a gradual decline. Policy support will come in, but it’s unlikely to bring a turnaround.” BACKGROUND
* China has struggled to mount a strong and sustainable post-COVID economic rebound, burdened by a protracted property downturn, massive local government debt and weak private-sector spending.
* The world’s second-largest economy, which got off to a bumpy start this year, is facing one of its biggest challenges to its financial stability and growth as U.S. President Donald Trump ratchets up tariffs on its goods to eye-watering levels.
* Authorities have sharply ramped up policy stimulus since late September, but analysts believe much more is needed, and quickly, to keep the economy on an even keel in the face of Trump’s tariff shock. Longer-term structural challenges such as overcapacity, high debt levels and an ageing population are also in play.
* China has set an ambitious 2025 growth target of “around 5%”, though the spiralling trade war with the United States has already prompted many analysts to sharply downgrade their GDP forecasts for this year.
* Exports have remained a lone bright spot in China’s economy, with a trillion dollar trade surplus last year helping to underpin growth.
* Policymakers have repeatedly said the country has ample room and tools to bolster the economy and premier Li Qiang this month pledged to roll out more support measures.
(Reporting by Reuters Asia bureaus; Compiled and edited by Sherry Jacob-Phillips)
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