China’s economy beats forecasts to grow 5 per cent in first quarter of 2026

SHENZHEN - China opened the year with speedier growth than expected, as strong exports made up for weak domestic demand and helped keep production lines moving.

But this does not yet signal its resilience to the effects of the Iran war, analysts say, which is clouding the global economic outlook and could yet hit the world’s second-largest economy with higher costs and softer orders.

China’s gross domestic product (GDP) grew 5 per cent in the first three months of 2026 from a year earlier, official figures released on April 16 showed, exceeding forecasts by Reuters-polled economists of a 4.8 per cent expansion.

This was up from the 4.5 per cent growth recorded in the last quarter of 2025, which had marked a three-year low. China is targeting growth of 4.5 per cent to 5 per cent in 2026.

Speaking to reporters at a press conference in Beijing, Mr Mao Shengyong, a deputy commissioner at the National Bureau of Statistics, said the Chinese economy had got off to a good start, but added that “the external environment has become more complex and volatile”, while an imbalance between weak domestic demand and strong supply remained “prominent”.

One driver of China’s growth in the first quarter of the year was robust factory activity. Industrial output rose 6.1 per cent, with high-tech manufacturing a bright spot at 12.5 per cent.

The production of goods such as semiconductors, industrial robots, lithium batteries and 3D printers did especially well, notching double-digit expansion ranging from 24 per cent to 54 per cent.

The demand for factory goods was helped by a 14.7 per cent rise in exports in the first three months of 2026, data released earlier showed.

Shipments slowed to 2.5 per cent in March, just after the war broke out, though analysts note that this could also be due to a seasonal distortion from the Lunar New Year holidays in February.

Foreign buyers helped offset weak consumer spending back home. Retail sales – a measure of consumption – grew just 2.4 per cent in the first quarter and in March missed expectations of 2.3 per cent to rise 1.7 per cent.

Sales of home appliances were flat while those of cars dropped 9.1 per cent in the first quarter, as a trade-in programme to boost consumption over the last two years – which continued in 2026 with pared-back subsidies – shifted demand for these goods forward.

Investments in fixed assets, which were negative in the second half of 2025, grew 1.7 per cent in the first quarter. Manufacturing and infrastructure investments led the recovery but the real estate sector – where investments fell 11.2 per cent – continued to be a drag.

“External demand kept growth buoyant in the first quarter. Yet, this reliance also raises concerns about its sustainability,” wrote Ms Sarah Tan, an economist at Moody’s Analytics, in a note.

Some economists warn that a drawn-out Middle East crisis could spike costs and erode profits for producers, while also reducing demand from consumers – including those overseas – who will buy less overall as prices rise across the board.

China exited a more than three-year streak of falling production prices in March as energy and commodity costs went up, in an early indication that the Iran war is beginning to bite.

“The first-quarter GDP does not tell us too much about (China’s) resilience to the Iran war, as much of the impact is unlikely to be seen until the next few months of data,” said Mr Lynn Song, chief Greater China economist at ING Bank.

“China is well-placed to weather short-term disruptions, but could face more pressure if energy prices remain higher for longer,” he said.

He added that domestic consumption and investment would be even more important to keep growth on track should trade falter.

It is not yet clear what the net effect of the Middle East crisis might be on Chinese exports going forward.

“The global energy crisis could serve as a tailwind for the export sector, given China’s unique advantages, particularly in power supply systems,” wrote Nomura economists in a note.

They added, however, that “this could be offset by weaker global demand, if the energy supply disruptions (are sustained)”.