The Chinese economy has started 2026 on a firmer footing, with the first-quarter GDP rising at a better-than-expected year-over-year (YoY) pace, according to data published by the National Statistical Bureau of China (NBS) on Thursday. The March data, however, suggested the Iran conflict was having an adverse impact due to supply-chain pressures.
Crunching the Number: The first-quarter GDP rose 5% from last year, compared to the fourth quarter’s 4.5% rate, which marked the slowest in nearly three years, and the 4.8% consensus.
Strong export growth (14.7%), which hit the fastest pace since early 2022, helped to offset the weakness in domestic demand.
The outlook for trade is uncertain as the Iran war continues to be an overhang despite the ongoing efforts to broker peace. China Customs' trade data released earlier this week showed a slump in March surplus as imports jumped and export growth slowed, with the country blaming the predicament on a sharp and sustained rise in fuel prices, significantly increasing oil transportation costs, which were now feeding through global supply chains.
Beijing has set an annual growth target of 4.5%-5% for 2026, which is the lowest since the early 1990s.
The quarterly growth was 1.3%, slightly slower than the 1.2% pace seen in the fourth quarter of last year. Economists had expected a slight quickening of pace to 1.4%.
In a press conference, NBS Deputy Commissioner Mao Shengyong said, "The national economy got off to a good start with the development showing greater resilience and vitality."
He also noted that industrial production growth (6.1%) accelerated, with high-tech and equipment manufacturing registering faster growth.
At the same time, the agency warned of an inclement external environment, which has become "more complex and volatile," and upsetting the demand-supply balance.
Economists have also expressed caution regarding China's forward outlook. Alpha Binwani Capital founder Ashwin Binwani called China a "split-screen economy. " Export-driven momentum bought Beijing time in Q1. But the Iran war energy shock is a slow bleed — repricing logistics, squeezing factory margins, and cooling the global buyers that China depends on."
Issuing its Spring forecast, the International Monetary Fund (IMF) reduced its 2026 GDP estimate for China to 4.4%.
Monthly Data Reaffirms Softness: A slew of monthly data for March released by the NBS came in weaker than expected. Comparisons with the month-ago levels are as follows:
- Retail sales: 1.7% YoY Vs 2.8% (2.4% consensus)
- Jobless rate: 5.4% Vs. 5.3% (5.2% consensus)
- Fixed asset investment: 1.7% Vs. 1.8% (1.9% consensus)
- Industrial production: 5.7% Vs 6.3% (5.4% consensus)
How Markets Reacted:
The Offshore Chinese yuan futures (CNH) contract, which traded at its highest level since Jan. 2023, was slightly higher at last check. The nation’s key stock market gauge, the Shanghai Composite Index started Thursday’s session higher, encouraged by the record close on Wall Street overnight, but gave up some of the gains ahead of the data release. In early reaction, the index has resumed its climb.
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