China's Q1 2026 GDP growth accelerates to 5% YoY, up from 4.5% in Q4 2025

China's economy accelerated in the first quarter of 2026 as strong export growth offset weak domestic demand. However, the energy shock from the Gulf War is threatening global demand, casting a shadow over the growth prospects of the world's second-largest economy. Illustration — Photo: Reuters. The Chinese economy accelerated in the first quarter of this year, with robust export growth offsetting weak domestic demand. Nevertheless, the energy shock from the Gulf War is threatening global demand, casting a shadow over the growth outlook for the world's second-largest economy. Data released by the National Bureau of Statistics (NBS) on April 16 show that gross domestic product (GDP) grew 5% year on year in the first quarter, up from 4.5% in Q4 2025, and above the 4.8% forecast by economists in a Reuters poll. Earlier this year, Beijing lowered its annual growth target to around 5% to 4.5-5% for 2026. This is the least ambitious GDP growth target since the early 1990s, perhaps an implicit acknowledgment of challenges from weak demand and persistent trade tensions with the United States. ‘We need to recognize that external conditions have become more complex and volatile,’ the NBS said in a statement, warning about dangerous imbalances between ‘strong supply and weak demand.’ According to the NBS, urban fixed-asset investment (including real estate and infrastructure) rose 1.7% in Q1 year on year, missing the 1.9% forecast in Reuters survey. Real estate investment fell 11.2%. In March, retail sales rose 1.7% year on year, below February's 2.8% and below economists' forecast of 2.3%. Industrial output in March rose 5.7% year on year, above the 5.5% forecast but below February's 6.3%. The urban surveyed unemployment rate in March was 5.4%, up from 5.3% in February. Thus far, the Gulf War energy shock has had limited impact on China’s economy, thanks to years of efforts to bolster energy security. But analysts say energy price shocks could still leave China—a major energy importer and heavily reliant on exports to drive growth—vulnerable. Growth in trade slowed, producer prices at factories rose, and the outlook for economic growth for the rest of the year deteriorated. According to data from Economist Intelligence Unit (EIU), in Q1 2026 China’s export value in USD rose 14.7% year on year, the strongest gain since early 2022. ‘On one hand, China’s economy remains resilient, as the impact of the Iran conflict on China is limited. On the other hand, there is an imbalance between a strong export sector and weak domestic demand,’ said Xu Tianchen, senior economist at Guotai Haitong Securities. In March, exports grew 2.5%, sharply slower than the 21.8% in the first two months, due to higher energy prices and skyrocketing logistics costs weighing on global demand. The Producer Price Index (PPI) rose in March, marking the first month of increase in more than three years after a period of declines. This signals that high energy prices are starting to affect manufacturing and threaten the narrow profit margins of producers. ‘China’s manufacturing sector remains resilient and could continue to serve as a growth pillar in the near term. Looking ahead, macro policy could focus on two closely linked priorities—boosting investment and stimulating domestic demand,’ Zhou Hao of Guotai Haitong Securities said to Reuters. Compared with the previous quarter, China’s GDP grew 1.3% year on year in Q1 2026, in line with expectations and modestly above the 1.2% growth in Q4 2025. China has pledged to increase spending on large-scale infrastructure and public services to meet the 2026 growth target, the first year of the new five-year plan. In Q1, fiscal spending rose 3.6% year on year, stronger than the 1% growth for all of last year. Beijing has set a deficit target of around 4% of GDP this year and is promoting bond issuance to support growth. The PBOC has pledged to maintain an accommodative monetary policy stance, though room to ease is limited by rising inflation. Economists polled by Reuters expect the PBOC to hold the one-year LPR through year-end, and to accompany this with a 0.2 percentage point cut to banks' reserve requirement ratio in Q3.