China's economy grows faster than expected despite Iran war

The better-than-expected GDP data comes as Asian countries have been hit hard by the impact of the conflict.

China's economy expanded by 5% in the first quarter of 2026, surpassing expectations despite the global economic turbulence caused by the Iran war. This growth, up from 4.5% in the previous quarter, marked the fastest quarterly increase in a year. The conflict has led to rising energy prices and inflation, globally dampening economic growth and reducing demand for exports. Still, China has shown resilience, benefiting from strong industrial output and robust exports of electronics, automobiles, semiconductors, and robotics. However, domestic challenges persist, including weak retail sales growth at 1.7% in March and ongoing sluggish consumer demand linked to a prolonged real estate slump. The International Monetary Fund has adjusted China's 2026 growth forecast to 4.4%, citing geopolitical uncertainties. While China's exports remain a cornerstone of its economy, economists warn that prolonged conflict and global protectionism may hurt long-term trade. To sustain growth within its 4.5%-5% target range, China may need to increase public investment and stimulate household demand. Without such domestic support, reliance on exports could expose the economy to greater vulnerabilities and deflationary pressures.

China's economy likely picked up speed early in 2026 on strong exports and policy support, but the momentum is fraying as the Middle East conflict pushes up energy costs, cools global demand, and threatens to squeeze already-thin corporate margins. The Iran war has exposed a key fault line: as the world’s biggest energy importer and a heavily export-reliant economy, China is vulnerable to an oil shock already slowing trade, lifting factory costs, and darkening the outlook for the year. Data due out Thursday is expected to show gross domestic product grew 4.8% in January-March from a year earlier, quickening from a three-year low of 4.5% in the October–December quarter, according to a Reuters poll. GDP growth is expected to slow to 4.7% in the second quarter, dragging the full-year expansion to 4.6% in 2026 from last year’s 5.0%, the poll showed, broadly in line with the official target of 4.5%-5.0%.