China's economy grew by 5% in Q1, exceeding expectations, but domestic demand remained weak. Meanwhile, rising energy costs due to the Iran-Iran conflict are beginning to pressure trade, production, and the economic outlook going forward.
On April 16, 2026, at 9:13 AM, CNBC reported that the Chinese economy expanded more strongly than expected in the first quarter of 2026, primarily driven by strong export growth, despite domestic demand remaining sluggish. Meanwhile, the risk of a conflict with Iran, which could drive up energy prices, is becoming a factor pressuring future growth prospects.
China's National Bureau of Statistics reported that the country's gross domestic product (GDP) grew by 5% year-on-year in January-March, accelerating from 4.5% in the previous quarter and exceeding economists' forecasts of 4.8%.
However, Beijing has lowered its economic growth target for this year to 4.5–5%, the lowest level since the early 1990s, reflecting concerns about slowing demand and ongoing trade tensions with the United States.
The statistics office stated that the external environment has become more complex and volatile, warning of a serious imbalance between a strong production sector and weak domestic demand.
In terms of investment, investment in fixed assets in urban areas, including real estate and infrastructure, increased by only 1.7% in the first quarter, lower than market expectations of 1.9%. The real estate sector, in particular, continued to contract sharply by 11.2%.
While domestic consumption has not yet fully recovered, retail sales in March expanded by only 1.7%, slowing from 2.8% in February and falling below analysts' expectations of 2.3%.
The manufacturing sector continues to support the economy, with industrial production in March increasing by 5.7%, higher than the expected 5.5%, although it slowed from 6.3% in the previous month.
In the labor market, the urban unemployment rate increased slightly to 5.4% in March from 5.3% in February.
China, as the world's largest oil importer and a highly export-dependent economy, is facing vulnerability to energy shocks. Rising oil prices are beginning to drive up production costs, slow trade, and create greater uncertainty regarding the economic outlook for the remainder of the year.
Although exports grew by 14.7% in the first quarter, the highest level since the beginning of 2565, growth slowed to just 2.5% in March from 21.8% in the first two months of the year, reflecting the impact of higher energy and logistical costs resulting from the Iran-Iran conflict.
Meanwhile, China's factory-gate prices rose in March for the first time in over three years, indicating that higher energy costs are beginning to be passed on to manufacturing, which could put pressure on already thin business profit margins in the coming period.
Reference: cnbc.com
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