Stronger-than-expected economic data show that China was carrying robust momentum into the beginning of the trade war.

The combination of a stronger start to the year and revisions to the national accounts back data – which proved favourable to growth in the current year – pushes up our 2025 growth forecast to 4.3% (+0.1ppt).

Moreover, our forecast is conditioned on cooler heads prevailing, which lowers the average tariff rate on Chinese goods to around 60%. The current average is well above 100%, while we have also seen non-tariff actions escalate. China is reportedly considering halting deliveries of Boeing aircraft, while the US has placed new restrictions on the export of Nvidia’s H20 chips to China. 

Complementing the robust set of monthly activity data for March, our in-house China Financial Conditions Index (CFCI) loosened modestly (+0.14pts), remaining squarely in accommodative territory. The CFCI should also get a boost in April following the sharp decline in bond yields since “liberation day”, although that will be partly offset by falling equities.

That said, lower yields also reflect a larger economic headwind. And there is also a risk that the authorities allow deflation to become embedded, blunting policy easing by pushing up on real rates. The GDP deflator is likely to extend its record-breaking run below zero, which may restrain fiscal easing.

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