By Kevin Yao

China’s Economic Outlook

BEIJING (Reuters) – China’s economy is expected to slow in the first quarter due to a prolonged property downturn and the impact of significant U.S. tariffs. Analysts suggest these tariffs pose the biggest risk to China’s economy in decades.

President Donald Trump has increased tariffs on Chinese goods to extreme levels, prompting China to retaliate with higher duties on U.S. imports, intensifying the trade war between the world’s two largest economies. Markets are concerned that this trade war could lead to a global recession.

Data forecasted for Wednesday suggests that China’s GDP grew by 5.1% in the January-March quarter compared to a year earlier, down from 5.4% in the previous quarter, based on a Reuters poll.

The economic outlook appears to dim further as U.S. tariffs impact crucial exports, increasing pressure on Chinese leaders to stabilize the economy and prevent mass unemployment.

Recent data indicates an uneven recovery, with bank lending exceeding expectations and factory activity on the rise. However, concerns about weak demand linger due to rising unemployment and deflationary pressures.

Analysts note that a spike in March exports, driven by factories racing to ship products before new tariffs take effect, is likely to drop significantly in the months ahead as the full impact of U.S. levies becomes apparent.

Analysts at Societe Generale noted, “Before the tariff storms hit, China’s GDP growth likely eased but remained solid, thanks to the recovery in domestic demand.” They emphasized that while the GDP report could show stimulus effects, larger tariff challenges lie ahead.

Trump’s tariffs are notably higher for China than other countries, with recent duties on Chinese goods rising to 145%, while Beijing retaliated with tariffs on U.S. goods of 125%.

The quarterly growth forecast for the economy is 1.4% in the first quarter, down from 1.6% in October-December. Retail sales data for March are also expected to reflect growth but at a slowing rate.

Looking ahead to 2025, the economy is projected to grow at a subdued 4.5% year-on-year, a decrease from last year’s 5.0%. UBS has revised its forecast for 2025 growth down to 3.4%, attributing it to ongoing tariff challenges and expected stimulus measures from Beijing.

Room for Stimulus

Policymakers assert that they have ample resources to support the economy and Premier Li Qiang has expressed a commitment to implement more supportive measures. Beijing is prioritizing consumer spending this year to mitigate the effects of U.S. tariffs on its trade sector.

The Politburo is expected to convene later this month to outline policy agendas for the upcoming months. In March, China announced fiscal measures, including an increase in its annual budget deficit, with officials predicting further fiscal and monetary stimulus to tackle emerging challenges. This follows a series of monetary easing initiatives implemented late last year.

Earlier this month, Fitch downgraded China’s sovereign credit rating, citing rapidly increasing government debt and public finance risks, indicating a delicate balancing act for policymakers trying to expand consumption amid trade headwinds.