China's 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.
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.
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.
"The manufacturing side of the economy remains resilient and is still a key near-term growth anchor," said Hao Zhou, chief economist at Guotai Junan International in Hong Kong. "Looking ahead, China's macro agenda is likely to center on two intertwined priorities: reflation and boosting domestic demand."
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's 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.
ALSO READ: 'Respect Iran's Right Over Hormuz', Says China After Trump Claims Xi Supports Blockade
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% - the lowest since 1991.
"Overall, the main macro indicators rebounded in the first quarter, and new drivers are growing rapidly," the NBS said in a statement. "But 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."
Some signs of strain are already showing. Growth has become increasingly lopsided, powered by exports and high-tech manufacturing while consumption lags.
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%.
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.
A rising number of economists is forecasting the People's Bank of China won't cut interest rates this year, because the oil shock pushed up inflation expectations.
ALSO READ: 'China Very Happy': Trump Claims Xi Backing US Move To Permanently Open Hormuz
Economy-wide prices didn't 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.
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's the 12th straight quarter of decline.
"Weak labor demand is weighing on consumption," said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd. "The momentum remains manufacturing-driven. Given the Middle East conflict and potential disruption to energy supply, we see the downside risk to growth."
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.