China poised for Q1 GDP growth rebound, but Iran war dims 2026 outlook
The world’s second-largest economy is expected to book 4.8% year-on-year expansion in the first quarter
Add BT as a preferred source
DeeperDive is a beta AI feature. Refer to full articles for the facts.
[BEIJING] China’s economy likely regained some momentum in the first quarter on solid exports, but growth is expected to cool over the rest of 2026 as the Middle East crisis threatens to choke corporate profits and sap overseas demand, a Reuters poll showed.
Gross domestic product growth in Q1 is forecast at 4.8 per cent from a year earlier, quickening from a three-year low of 4.5 per cent in the October-to-December quarter, a Reuters poll of 50 economists showed.
Growth is expected to slow to 4.7 per cent in Q2, dragging the full-year expansion to 4.6 per cent in 2026 from last year’s 5 per cent, according to the median forecast in the poll. This is broadly in line with the official target of 4.5 to 5 per cent.
China has so far absorbed the economic shock from the Iran war with limited disruption, cushioned by large oil reserves, a diversified energy mix and tight price controls. But economists warn that persistently higher oil prices are already lifting input costs and squeezing profits at a time when domestic demand remains weak.
China’s exports, a key pillar of growth, could falter if the conflict drags on and undermines the global economy, they added.
“Higher oil prices would hit China’s economy through terms of trade shock and downstream margin squeeze,” analysts at Morgan Stanley said.
Navigate Asia in
a new global order
Get the insights delivered to your inbox.
“But unlike many other net oil-importing countries, which face production disruptions owing to energy shortage and constrained policy space amid elevated inflation, China is better positioned.”
Strains are nonetheless starting to show. China’s factory-gate prices rose in March for the first time in more than three years, an early signal that energy-driven cost pressures are seeping into the world’s second-largest economy and threatening already thin corporate margins.
Data due out on Tuesday (Apr 14) is expected to show that China’s export growth cooled in March as buyers chasing an AI-fuelled future confronted the hard reality of war in the Middle East.
On a quarterly basis, the economy is forecast to grow 1.3 per cent in Q1, compared with 1.2 per cent growth in Q4, the poll showed.
The government is due to release Q1 GDP data, along with March activity data, on Thursday.
Modest stimulus
Beijing has set a budget deficit of about 4 per cent of GDP for 2026 and lined up heavy bond issuance to support growth, while the central bank has pledged to keep policy accommodative despite having limited room to cut rates as inflation edges higher.
“With the 2026 growth target set at 4.5 to 5 per cent, a strong first-quarter print should give policymakers room to hold off major stimulus at the late-April Politburo meeting despite Middle East-related energy risks,” analysts at Societe Generale said.
The Politburo, a top decision-making body of the ruling Communist Party, is expected to meet later this month to assess the economic outlook.
Policymakers have acknowledged an “acute” imbalance between strong supply and weak demand. They have vowed to “significantly” lift household consumption’s share of the economy over the next five years, though no specific target has been set.
Analysts polled by Reuters see the central bank keeping the benchmark one-year loan prime rate unchanged through the end of 2026, while cutting banks’ weighted-average reserve requirement ratio by 20 basis points in Q3.
Consumer inflation is forecast to quicken to 1 per cent in 2026 from flat growth in 2025, before steadying in 2027, the poll showed. REUTERS
Decoding Asia newsletter: your guide to navigating Asia in a new global order. Sign up here to get Decoding Asia newsletter. Delivered to your inbox. Free.
Share with us your feedback on BT's products and services
