China's first-quarter economic growth rate reached 5.4%, surpassing market expectations. Most indicators, including consumption, industrial production, and exports, showed strong performance. If this trend continues, achieving this year's target annual economic growth rate of around '5%' seems feasible. However, global economic institutions are throwing out pessimistic outlooks, forecasting growth rates in the 4% range. This is because the impact of the trade war with the United States will be fully reflected starting this month, which is expected to weigh down China's economy. To overcome this, it is anticipated that China will soon implement stimulus measures, drawing attention to the timing and intensity of these efforts.
China's National Bureau of Statistics announced on the 16th that the country's gross domestic product (GDP) for the first quarter was 31.8758 trillion yuan (approximately 6,213.5 trillion won), a 5.4% increase compared to the same period last year. This growth rate exceeded the expectations of experts compiled by Reuters and Bloomberg, which ranged from 5.1% to 5.2%, and is at the same level as last year's fourth quarter (5.4%), which had the highest performance since the second quarter of 2023 (6.3%). Thanks to a strong start in the first quarter, China has gained some leeway to achieve its annual target growth rate of around '5%'.
Most detailed indicators also performed well. The retail sales figure announced for March was 4.094 trillion yuan (approximately 798 trillion won), marking a 5.9% increase compared to the same period last year. This is not only the highest growth rate since December 2023 (7.4%) but also surpassed market expectations of 4.3%. China's National Bureau of Statistics noted that the "Iguakwanxin" (subsidies for exchanging old products for new ones) policy is still effective, with notable increases in sales for telecommunications devices (26.9%), office supplies (21.7%), home appliances and sound devices (19.3%), and furniture (18.1%).
Additionally, industrial production increased by 7.7% compared to the same period last year, significantly exceeding market expectations of 5.8% and is the highest growth rate since June 2021 (8.3%). Fixed asset investment from January to March rose by 4.2% year-on-year, returning to the level of the previous year (4.2%) and also beating market forecasts of 4.1%. The urban unemployment rate for March decreased to 5.2% from 5.4% the previous month. The export figure for March, announced on the 14th, also saw a surprising growth of 12.4% year-on-year, contributing positively to the strong indicators for the first quarter.
However, the outlook ahead is bleak. The biggest factor is the trade war with the United States. Zhang Ziwei, representative and chief economist at Pinpoint Asset, said to U.S. CNBC, "The damage caused by the trade war will start to show in next month's data." This is because the additional tariff of 145% imposed by the U.S. on Chinese imports has officially increased starting in April. Since exports are a key driver of China's growth, the damages in this area will inevitably become a direct factor pressing down economic growth. This will gradually undermine the economy as well. Michelle Lam, economist for Société Générale in China, stated to Bloomberg, "(This improvement trend) is all in the past."
A sense of crisis is also evident in the statement from China's National Bureau of Statistics. It stated, "The current external environment is becoming increasingly complex and severe, and we must recognize that there is a lack of momentum for domestic effective demand growth and that we need to lay the foundation for sustained economic recovery," and emphasized, "We need to implement more active and effective macroeconomic policies and actively respond to uncertainties in the external environment."
The ongoing issues of housing and prices not being controlled are also problematic. From January to March, nationwide real estate development investment amounted to 1.9904 trillion yuan (approximately 388 trillion won), down 9.9% compared to the same period last year. The rate of decline has widened compared to January-February (-9.8%). The new housing prices in 70 cities, excluding state-subsidized housing, fell by 0.08% in March. While this is a slight improvement over February (-0.14%), the upward trend has not yet reversed. In March, the consumer price index (CPI) in China fell by 0.1% year-on-year, marking a second consecutive month of negative growth, and the producer price index (PPI), a leading indicator of CPI, continued to decline for 30 consecutive months.
Major global economic institutions already view a decline in China's growth rate this year as inevitable. The global investment bank UBS recently lowered its forecast for China's annual growth rate from 4% to 3.4%. Wang Tao, an economist at UBS, stated, "The tariff shock will give Chinese exports unprecedented difficulties and will also bring significant adjustments to the domestic economy." UBS projected that China's exports to the U.S. will decrease by two-thirds, and total exports will decline by 10% (in dollar terms). Citigroup and Goldman Sachs also lowered their respective forecasts for China's annual growth rate from 4.7% to 4.2% and from 4.5% to 4.0%. If this continues, China is on track to record the lowest level since 2022 (3.0%). It recorded a growth rate of 5.2% in 2023 and 5.0% last year.
The key issue is when and to what extent China will implement economic stimulus measures. China has repeatedly emphasized since the end of last year that it would adopt more accommodative monetary and proactive fiscal policies to offset the impact of the trade war with the United States. There are expectations that measures could begin as early as this month. Robin Sing, chief economist for Morgan Stanley in China, stated, "China is expected to expedite monetary easing measures in the second quarter," and noted that the bank's reserve requirement ratio and the loan prime rate (LPR, effectively the benchmark interest rate) could be lowered by 50 basis points (1 basis point = 0.01 percentage point) and 15 basis points, respectively. Raymond Yong, chief economist for Australia and New Zealand Banking Group in China, mentioned to Bloomberg, "China has no choice but to rely solely on domestic demand," and added, "While this retail sales performance is encouraging, whether these figures can be sustained depends on the speed and scale of the economic stimulus measures."