GBA – Survey Reflects Calm Before Tariff Storm
·Q1 GBAI shows rebound in sentiment; respondents see better Q2 outlook before reciprocal tariff shock
·Credit conditions still tight on elevated financing costs; we see imminent rate cut to support sentiment
·We asked timely thematic questions on the impact of, and response to, consumption-boosting policies
If only they had known what was coming
Our GBA Business Confidence Index (GBAI), based on quarterly surveys of over 1,000 companies operating in the Guangdong Hong Kong Macau Greater Bay Area (GBA) and conducted in collaboration with the Hong Kong Trade Development Council (HKTDC), showed broad based improvement in Q1 2025 (Figures 1 and 2). The headline index for current business performance rose to 53.5 from 50.7 prior, while the more forward looking expectations index improved to 54.3 from 52.9 in Q4 2024. This showed that GBA companies weathered the initial rounds of US tariff hikes (10%+10%) well, in part thanks to the DeepSeek breakthrough lifting market sentiment as well as the rising prospect of more policy stimulus from China's policy makers. However, respondents' more upbeat outlook in February March (when the Q1 survey was conducted) likely did not prepare them for recent events, i.e., President Trump's
announcement of sweeping and sizeable reciprocal tariff hikes on China and most other countries. Our credit indices show that SMEs' financing conditions worsened in Q1, echoing calls for more monetary easing in Q2.
Shenzhen was the only city with lower Q1 headline scores, dragged down by the manufacturing and retail sector underperformance. By sector, innovation and technology regained the top spot. Our thematic questions focused on China's accelerated push for more consumption boosting policies. Trump's tariff shock highlights the urgency for GBA businesses to continue to ride China's shift towards a more consumption driven China growth model. A majority 51% of respondents are tapping, or actively planning to tap, the mainland China consumer market.
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