The Chinese economy accelerated in the first quarter, growing 5% year-on-year despite the impact of the war in Iran, according to data released today by authorities. The data for the period between January and March, which covers the start of the conflict, exceeded economists’ expectations and was higher than the 4.5% recorded in the previous quarter.
Analysts believe that China should withstand the short-term impacts of the war, which is entering its seventh week, but warn of medium-term risks, including a slowdown in global demand for Chinese exports. Rising energy prices, driven by the conflict, are putting pressure on inflation and global economic growth.
The International Monetary Fund revised down its growth forecast for China to 4.4% for 2026 this week. Last month, Chinese authorities set a growth target between 4.5% and 5% for this year, the lowest since 1991. “China can probably absorb short-term disruptions, but a prolonged war and higher energy prices for a longer period should start to affect growth in the second half of the year,” said Lynn Song, chief economist for Greater China at ING bank.
The prolonged crisis in the real estate sector continues to affect consumer and investor confidence, although the country achieved 5% growth last year, supported by robust exports that raised the trade surplus to a record level of about 1.2 trillion dollars (more than one trillion euros), despite tariffs imposed by United States President Donald Trump.
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“The absence of a rapid resolution to the war in Iran should penalize global growth, which will negatively affect the ability of other economies to absorb Chinese exports,” stated Eswar Prasad, a professor at Cornell University, as quoted by the Associated Press. On Tuesday, China reported that exports grew 2.5% in March year-on-year, slowing down compared to the previous two months.
According to Prasad, in a context where countries seek to protect their economies from the effects of the conflict, “demand for Chinese imports is clearly diminishing.” Economists believe that China could still reach its growth target for this year, “between 4.5% and 5%,” through policy stimulus, but warn that an increase in public investment could intensify deflationary pressures and reinforce dependence on exports if domestic demand does not recover significantly.
