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(Bloomberg) — China\u2019s economic growth rebounded more than expected in the first quarter of 2026, suggesting limited spillovers so far from the war in Iran and giving policymakers more time to be patient with rolling out additional stimulus.<\/p>\n
Gross domestic product expanded 5% from a year ago, the fastest in three quarters, according to a statement from the National Bureau of Statistics on Thursday. That compares with the 4.8% median forecast of economists surveyed by Bloomberg and a gain of 4.5% in the previous quarter.<\/p>\n
Industrial output grew 5.7% in March from a year ago, more than forecast but slowing from the first two months of this year. Retail sales fell short of forecasts and increased 1.7%, weakening from the 2.8% expansion in the January-February period.<\/p>\n
\u201cThe manufacturing side of the economy remains resilient and is still a key near-term growth anchor,\u201d said Hao Zhou, chief economist at Guotai Junan International in Hong Kong. \u201cLooking ahead, China\u2019s macro agenda is likely to center on two intertwined priorities: reflation and boosting domestic demand.\u201d<\/p>\n
The war, now in its seventh week, has yet to threaten the momentum that built at the start of 2026, thanks in part to China\u2019s moves in past years to strengthen energy security and insulate its economy from global turmoil. Years of deflationary pressure have also blunted the potential for an immediate impact on consumer prices from higher oil costs.<\/p>\n
Despite little evidence of improvement in domestic demand, the latest official assessment of the economy will likely reduce the urgency for additional stimulus, especially after Beijing adopted a more flexible approach toward growth by lowering its GDP goal to a range of 4.5% to 5% \u2014 the lowest since 1991.<\/p>\n
\u201cOverall, the main macro indicators rebounded in the first quarter, and new drivers are growing rapidly,\u201d the NBS said in a statement. \u201cBut we also need to see that the external situation is more complex and volatile, and the imbalance between strong domestic supply and weak demand is still stark.\u201d<\/p>\n
Some signs of strain are already showing. Growth has become increasingly lopsided, powered by exports and high-tech manufacturing while consumption lags.<\/p>\n
The surveyed urban jobless rate unexpectedly climbed in March to 5.4%, the highest in a year. Fixed-asset investment gained 1.7%, slightly weaker than the 1.8% increase in the first two months. Property investment slumped 11.2%.<\/p>\n
Factories had more days off compared with 2025 due to a later-than-usual Lunar New Year holiday, resulting in a seasonal drag on the data.<\/p>\n<\/p><\/div>\n
A rising number of economists is forecasting the People\u2019s Bank of China won\u2019t cut interest rates this year, because the oil shock pushed up inflation expectations.<\/p>\n
Economy-wide prices didn\u2019t rise in the first quarter as some analysts had expected, even though their decline narrowed as a result of the oil shock. Producer prices turned positive in March for the first time after three and a half years of deflation.<\/p>\n
The GDP deflator, a measure of price changes across the economy, fell 0.1% in the first quarter, according to calculations by Bloomberg based on official nominal and real growth numbers. That\u2019s the 12th straight quarter of decline.<\/p>\n
\u201cWeak labor demand is weighing on consumption,\u201d said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd. \u201cThe momentum remains manufacturing-driven. Given the Middle East conflict and potential disruption to energy supply, we see the downside risk to growth.\u201d<\/p>\n
–With assistance from Jacob Gu.<\/p>\n
(Updates with analyst comments starting in fourth paragraph, adds chart.)<\/p>\n
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