People walk outside a shopping mall during a week-long National Day holiday in Beijing on October 7, 2025.
Greg Baker | Afp | Getty Images
China’s economy gathered steam in the first quarter, as robust exports offset sluggish domestic consumption, though an energy shock stemming from the Iran war threatens to sap global demand and undercut that momentum.
Gross domestic product grew 5% in the three months to March, data from the National Statistics Bureau showed Thursday, accelerating from 4.5% in the prior quarter and exceeding economists’ forecast for a 4.8% growth in a Reuters poll.
Beijing had lowered its growth target this year to a range of 4.5% to 5%, the least ambitious goal on record going back to the early 1990s, in a tacit acknowledgement of demand slowdown and lingering trade tensions with the U.S.
“We should be aware that the external environment is becoming more complex and volatile,” the statistics bureau said in a statement, warning of “acute” imbalance between “strong supply and weak demand.”
Separately, urban fixed-asset investment, including in real estate and infrastructure, climbed 1.7% in the first quarter from a year earlier, missing expectations for a 1.9% growth in a Reuters poll. Real estate downturn persisted, with investment falling 11.2% this year as of March, steepening from a 9.9% drop during the same period last year.
In March, China’s retail sales grew 1.7% from a year earlier, slowing from a holiday-boosted 2.8% increase in February and undershooting economists’ forecast for a 2.3% growth. Industrial output expanded 5.7% last month from a year ago, stronger than analysts’ expectations for a 5.5% rise, and compared with 6.3% expansion in February.
Retail sales showed pockets of strength in the quarter, buoyed by Lunar New Year demand and government subsidy programs that spurred consumer upgrades, said Yuhan Zhang, principal economist at think tank The Conference Board, boosting spending in communication equipment, gold and jewelry.
Meanwhile, auto sales declined from a year earlier, signaling that consumers remained cautious with big-ticket consumption amid recent swings in oil prices, Zhang added.
Demand-supply imbalance persists
Resilient overall growth at the start of 2026 has reduced the need for policymakers to double down on fiscal stimulus or monetary easing, with policy focus shifting to sustaining private consumption and investment, said Tianchen Xu, senior economist at Economist Intelligence Unit. “Growth remains lopsided towards exports,” Xu added.
For the first quarter, industrial production jumped 6.1% year on year, outpacing retail sales’ quarterly growth of 2.4%, underscoring manufacturing’s continued dominance as the economy’s primary growth engine even as consumption lags.
In the first quarter, China’s exports grew 14.7% from a year earlier in terms of U.S. dollars, the fastest pace since early 2022, according to EUI.
That said, that growth has stalled as the Middle East conflict rages on.
As the world’s largest oil importer and a heavily export-reliant economy, China is vulnerable to an oil shock that’s already slowing trade, pushing up factory costs, and darkening the outlook for the rest of the year.
In March, the country’s export growth slowed to 2.5%, down sharply from 21.8% in the January-to-February period as the Iran war pushed up energy and logistics costs, weighing on global demand.
China’s factory‑gate prices rose in March for the first time in more than three years, signaling that a spike in energy costs has started seeping into the manufacturing sector and threatening already-thin corporate margins.
As “the supply shock feeds into weaker aggregate demand … even if China gains market share in certain sectors, this may be offset by a smaller overall export market,” said Robin Xing, chief China economist at Morgan Stanley.
— CNBC’s Evelyn Cheng contributed to this report.
