China's economy accelerated in the first quarter of 2026, with gross domestic product (GDP) rising by 5% year-on-year, according to data from the National Statistics Bureau released on April 16. This growth rate exceeded economists' forecast of 4.8% in a Reuters poll and marked an improvement from the previous quarter's 4.5% expansion [1]. The robust performance was largely driven by strong export growth, which offset weak domestic demand. In U.S. dollar terms, exports grew 14.7% in the first quarter, the fastest pace since early 2022, as reported by the Economist Intelligence Unit [1]. However, export growth slowed significantly in March to 2.5%, down from 21.8% in the January-to-February period, as the Iran war pushed up energy and logistics costs, dampening global demand [1].
Despite the headline GDP beat, other economic indicators highlighted ongoing challenges. Urban fixed-asset investment, including real estate and infrastructure, increased by 1.7% year-on-year in Q1, missing expectations for a 1.9% rise. Notably, investment in the property sector dropped sharply by 11.2% [1]. Retail sales in March grew just 1.7% from a year earlier, slowing from February's 2.8% increase and falling short of the 2.3% forecast [1]. Industrial output expanded 5.7% in March, slightly above analysts' expectations of 5.5%, but below February's 6.3% growth [1]. The urban survey-based unemployment rate edged up to 5.4% in March from 5.3% in February [1].
The statistics bureau cautioned that the external environment is becoming "more complex and volatile," citing an "acute" imbalance between "strong supply and weak demand" [1]. As the world's largest oil importer, China faces heightened vulnerability to energy shocks, with the Iran war already slowing trade, increasing factory costs, and clouding the outlook for the remainder of the year [1]. Factory-gate prices rose in March for the first time in over three years, indicating that rising energy costs are beginning to impact the manufacturing sector and threaten corporate margins [1].
Beijing had set a lower growth target for 2026, ranging from 4.5% to 5%, the least ambitious goal since the early 1990s, reflecting concerns about slowing demand and ongoing trade tensions with the U.S. [1].
CONCLUSION
China's Q1 GDP growth surpassed expectations, driven by strong exports, but underlying domestic weakness and rising energy costs pose risks for the rest of the year. The slowdown in retail sales, property investment, and export momentum in March, alongside warnings from the statistics bureau, suggest a cautious outlook. Market participants should monitor external shocks and domestic demand trends as Beijing pursues its modest growth target.