China’s economy likely gained speed in the first quarter of 2026, buoyed by resilient exports and increased policy support, but the boost is showing signs of wear as the Iran war pushes energy prices higher and weakens external demand.
Analysts expect the official first quarter gross domestic product figure, due to be published along with March activity data at 0200 GMT on Thursday, to show GDP growth of around 4.8% year‑on‑year for January‑March. That would mark an acceleration from the 4.5% pace recorded in the October‑December quarter, which was the slowest in three years.
Even so, forecasters surveyed see growth cooling to roughly 4.7% in the second quarter and slowing the full‑year expansion to 4.6% for 2026, down from 5.0% in 2025 but still broadly inside the official 4.5%‑5.0% target range.
Export strength remains a central element of the early 2026 story. For the January‑March period overall, exports rose 14.7% from a year earlier, well above the full‑year growth rate of 5.5% in 2025. However, the month‑by‑month data show strains: exports in March were up just 2.5% year‑on‑year, a sharp deceleration from the 21.8% expansion seen in January‑February as higher energy and transport costs and softer global demand took effect. Some analysts warned that seasonal distortions also influenced the March reading.
Financial institutions are watching these trends closely. Goldman Sachs projects first‑quarter GDP growth at 4.7%, while Citi analysts held to a 5.0% estimate for Q1, pointing to overall solid export performance. At the same time, Citi cautioned that the broader economic effects could become more pronounced should the conflict persist.
Market signals suggest the energy shock is already filtering through to domestic prices and factory margins. Factory‑gate prices rose in March for the first time in more than three years, indicating that energy‑driven cost pressures are embedding themselves in the production chain and threatening already thin corporate margins.
On a quarter‑on‑quarter basis, forecasters expect the economy to have expanded about 1.3% in January‑March, compared with 1.2% in October‑December.
Activity details for March are expected to show a mixed picture, with weakening consumption and softer factory output partly offset by firmer investment. Retail sales, a principal measure of household spending, are forecast to have grown 2.3% year‑on‑year in March, down from 2.8% in January‑February. Industrial production growth is expected to cool to 5.5% in March, from 6.3% in the first two months.
Investment in fixed assets is seen as a modest support. Growth of fixed‑asset investment is forecast to edge up to 1.9% in the first quarter from 1.8% in January‑February, when infrastructure investment showed a standout contribution by jumping 11.4% year‑on‑year.
Policy makers have signaled a willingness to lean on fiscal measures to sustain momentum. Fiscal expenditure rose 3.6% in January‑February, up from a 1.0% increase in 2025, and authorities have set a budget deficit of roughly 4% of GDP for 2026 while planning significant bond issuance to back growth. The central bank has pledged to maintain an accommodative stance, though it faces limited room to cut benchmark interest rates as inflationary pressures increase.
China’s Politburo is expected to convene later this month to assess the outlook. Officials have acknowledged an "acute" imbalance between strong supply and weak demand and have committed to "significantly" increase the share of household consumption in the economy over the next five years, although no specific numerical target has been announced.
Looking ahead for policy settings this year, analysts surveyed expect the central bank to keep the benchmark one‑year loan prime rate unchanged through the end of 2026, while anticipating a modest easing of liquidity via a 20 basis point cut to banks' weighted‑average reserve requirement ratio in the third quarter.
Contextual note - The unfolding Iran war has highlighted a structural vulnerability: as the world's largest energy importer and an economy substantially dependent on exports, China is sensitive to an oil shock that can slow trade, raise production costs and compress corporate profits.