China's real GDP rose by 5.0% year-on-year in the first quarter of 2026, reflecting a stronger-than-expected start to the year and placing growth at the top of the official 4.5%-5.0% target range [1]. Despite this robust performance, UOB economist Ho Woei Chen and team have maintained their 2026 GDP growth forecast at 4.7%, citing ongoing external headwinds such as supply disruptions and high oil prices, which are expected to dampen the global growth outlook and pose risks to China's exports [1]. The forecast assumes GDP growth will ease to around 4.6%-4.8% year-on-year in the next three quarters [1].
Monthly momentum remained positive, with month-on-month gains of 0.52% in March, following 0.99% in February and 1.68% in January, after three months of contraction [1]. The government plans to increase high-tech investments to bolster economic resilience, but the investment outlook is clouded by weak domestic demand, low confidence, and strained local government finances [1]. Externally, uncertainties from the Middle East conflict and US trade probes into China's trading partners are highlighted as key near-term risks [1].
Inflation remains contained, with a revised 2026 headline CPI forecast of 1.3%, well below the official 2% target, providing the People's Bank of China (PBOC) with room to maintain a 'moderately loose' monetary policy stance [1]. The government’s regulation of refined oil prices and potential subsidies are expected to help mitigate the impact of higher global crude oil prices on domestic inflation [1].
Given the strong GDP data and subdued inflation, the likelihood of near-term rate cuts has diminished. UOB now projects a modest 10-basis-point policy rate cut in the third quarter of 2026, delayed from an earlier expectation of the second quarter, due to heightened uncertainties from Middle East developments [1]. In this context, targeted monetary easing and structural support measures are expected to become more important [1].
CONCLUSION
China's stronger-than-expected Q1 2026 GDP growth has reduced the likelihood of imminent rate cuts, with UOB now expecting only a modest policy easing in the third quarter. While the economy shows resilience, ongoing external risks and weak domestic demand continue to cloud the outlook, prompting a cautious policy stance.