China's Economy Expands Beyond Forecasts in Q1 2026

(MENAFN) China's economy expanded 5% year-on-year in the first quarter of 2026, surpassing market expectations of 4.8% and accelerating from 4.5% growth in the prior quarter, as robust exports and industrial output powered an stronger-than-expected start to the year.

Data released Thursday by the National Bureau of Statistics showed the world's second-largest economy outperforming forecasts, even as Beijing held its 2026 growth target at 4.5% to 5% — a range reflecting lingering concerns over sluggish domestic demand and escalating trade tensions with Washington. The statistics bureau cautioned that the external environment is growing "more complex and volatile," warning that the imbalance between strong supply and weak demand remains pronounced.

Domestic Indicators Flash Warning Signs
The headline figure masked significant internal weaknesses. Urban fixed-asset investment rose just 1.7% in the first quarter, falling short of the 1.9% forecast, while the property sector's downturn deepened — real estate investment contracted 11.2% through March, worsening from a 9.9% decline recorded a year earlier.

Consumer spending showed further signs of fatigue. Retail sales grew just 1.7% in March, decelerating sharply from 2.8% in February and missing the 2.3% consensus estimate. Industrial output rose 5.7% in March, marginally above expectations but cooling from February's 6.3% pace.

For the full quarter, industrial production surged 6.1% year-on-year — nearly three times the 2.4% retail sales growth — laying bare the economy's heavy reliance on manufacturing and exports over household consumption. Some consumer resilience emerged around Lunar New Year spending and government subsidy programs targeting communication equipment, gold, and jewelry purchases. However, softening auto sales signaled continued household caution on major expenditures.

Iran War Complicates Outlook
The economic picture has been further clouded by the Iran war, which has driven up oil and transport costs and begun squeezing external demand. As the world's largest oil importer and an export-reliant economy, China faces acute exposure to the conflict's energy market ripple effects.

Export growth slowed dramatically to 2.5% in March, down from a 21.8% surge in the January-February period, as rising energy and logistics costs linked to the conflict weighed on overseas orders. Factory-gate prices rose in March for the first time in over three years — a signal that higher energy costs are feeding through to the manufacturing sector and eroding corporate margins.

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