China Economy Grows 5%, Iran War Risks Loom

The 5% growth from January-March was up from 4.5% in the prior quarter and represented a 1.3% quarter-on-quarter increase, the fastest in a year. Economists, including Lynn Song, chief economist for Greater China at Dutch bank ING, and Eswar Prasad, a professor of economics and trade policy at Cornell University, confirm China's ability to weather short-term disruptions from the Iran war, which pushes energy prices higher and impacts global growth.

However, the International Monetary Fund trimmed China's 2026 growth estimate to 4.4% due to Iran war shocks, and experts warn that a protracted conflict and sustained high energy prices will hurt global demand for Chinese exports in the second half of the year. Industrial output rose 5.7% in March, driven by strong global demand for electronic equipment, autos, semiconductors, and robotics, but retail sales grew only 1.7%, reflecting sluggish domestic demand.

China's reliance on exports, which propelled its economy to achieve its "around 5%" growth target last year despite U.S. President Donald Trump’s higher tariffs, faces increasing challenges as global appetite for imports shrinks. Policy stimulus, particularly public sector investment, will help China attain its 4.5% to 5% growth target for 2026, but this risks intensifying deflationary pressures and increasing export reliance without stronger household demand.