China’s economy picked up pace in the first quarter of the year, growing 5% compared to the same period last year, as it largely withstood the early effects of the Iran war, according to official data released .
The January–March figures, which cover the period when the conflict began, came in stronger than economists had predicted and improved from the 4.5% growth recorded in the previous October–December quarter.
On a quarterly basis, the economy expanded by 1.3% in the first three months, marking its fastest growth rate in a year.
Experts say China, the world’s second-largest economy, is likely to manage the short-term impact of the war, now in its seventh week. However, rising energy prices driven by the conflict are adding to inflation pressures and weighing on global growth. Over time, weaker global demand could affect Chinese exports.
The International Monetary Fund recently lowered its 2026 growth forecast for China to 4.4%, reflecting broader global economic concerns linked to the conflict. Chinese authorities had earlier set a growth target of 4.5% to 5% for this year, the lowest since 1991.
“China can likely weather short term disruptions, but a prolonged war and sustained high energy prices could begin to slow growth in the second half of the year,” said Lynn Song.
Separate data released showed China’s industrial output rose 5.7% in March from a year earlier, beating expectations as global demand for electronics, vehicles, semiconductors and robotics remained strong.
However, retail sales increased by just 1.7%, falling short of forecasts and slowing from 2.8% growth in the first two months of the year, highlighting weak domestic consumer demand.
China’s prolonged real estate downturn has continued to hurt consumer and investor confidence. Still, the country achieved around 5% growth last year, supported by strong exports that pushed its trade surplus to nearly $1.2 trillion, despite higher tariffs imposed by US President Donald Trump.
Economists say exports will remain a key driver of China’s economy this year, but heavy reliance on them could pose risks.
“The lack of a quick resolution to the Iran war is likely to slow global growth, reducing other countries’ capacity to import Chinese goods,” said Eswar Prasad.
He added that as countries focus on protecting their own economies from the impact of the conflict, demand for Chinese imports is likely to weaken.
China reported earlier this week that exports grew 2.5% in March compared to a year earlier, a noticeable slowdown from the previous two months, partly due to seasonal factors.
While economists believe China could still meet its annual growth target through policy support, concerns remain. Increased public investment may help sustain overall growth, but without stronger consumer demand, it could deepen deflation risks and further increase dependence on exports.