China - Green shoots meet trade war

The Chinese economy saw green shoots in Q1, but the trade war created a new headwind in April.
Still, we leave our growth outlook unchanged as our medium-term scenario for the trade war remains the same with an end game of 40% tariffs on Chinese goods following a long bumpy road of trade talks. Stimulus was pushed forward as expected to counteract tariff effect.
We continue to see growth at 4.7% in 2025 and 4.8% in 2026.
Over the coming months we expect a pick-up in activity due to front loading of exports during the 90-day trade truce but see activity moderating again after that.
Housing and private consumption have improved but lots of work remain to get the two sectors on stronger footing.
A growing number of tech milestones have boosted confidence.
The US-China rivalry is set to continue. US tech sanctions keep widening while China retaliates with limits on rare earth exports.
Trump’s America First policy has led to a thaw in EU-China relations. Tensions remain, though, when it comes to China’s rise as a competitor, industrial policy, overcapacity, and China’s position on the Ukraine war.

Danske Research Team Danske Bank A/S

Activity to pick up as trade war truce boosts exports

China’s economy was off to a strong start in Q1 with GDP growth of 5.4% y/y and green shoots with moderate improvement in housing and retail sales. Equity markets also saw strong performance with offshore stocks up 20% by the end of March. However, with April’s sharp escalation in the trade war leading to a de facto trade embargo between US and China, a new strong headwind showed up and data for April came in weak. The pendulum swung back quickly again, though, with the sharp de-escalation of the trade war in early May. The two sides have agreed to a 90-day trade truce with tariff rates at 10% and 30% on US and Chinese goods, respectively. This has already led to a surge in export orders as US companies are in a hurry to order goods from China before tariffs might go up again.

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Danske Research Team

Danske Bank A/S

Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.

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