China’s Economy Accelerates to 5% in First Quarter, Defying Early Iran War Pressures but Facing Growing Global Risks

China’s economy opened the year on a stronger footing than expected, expanding 5% in the first quarter compared with a year earlier, according to official data released Thursday. The performance marks an acceleration from the 4.5% growth recorded in the final quarter of last year, suggesting the world’s second-largest economy has, for now, largely absorbed the early shockwaves of the ongoing Iran war.

On a quarterly basis, growth reached 1.3% between January and March, the fastest pace in a year. The figures, which cover the initial phase of the conflict now entering its seventh week, exceeded market expectations and point to short-term resilience despite rising geopolitical tensions.

Still, economists caution that the broader implications of the war—particularly higher energy prices, mounting inflation, and slowing global growth—could weigh more heavily in the months ahead. The International Monetary Fund recently revised down its 2026 growth forecast for China to 4.4%, reflecting wider concerns over global economic headwinds. Beijing, meanwhile, has set a target range of 4.5% to 5% for the year, already its most modest goal since 1991.

“China can likely weather short-term disruptions, but a prolonged conflict and sustained high energy prices would begin to erode growth momentum in the second half,” said Lynn Song, chief economist for Greater China at ING.

Recent data underscores the uneven nature of the recovery. Industrial output rose 5.7% year-on-year in March, beating expectations as demand for Chinese exports—particularly in electronics, automobiles, semiconductors, and robotics—remained firm. In contrast, retail sales increased just 1.7%, missing forecasts and slowing from earlier gains, highlighting persistent weakness in domestic consumption.

That softness continues to be linked to China’s prolonged real estate downturn, which has dampened both consumer and investor confidence. Despite these structural challenges, the country achieved roughly 5% growth last year, largely driven by a surge in exports that pushed its trade surplus to a record $1.2 trillion—even amid higher tariffs imposed by Donald Trump.

Exports are expected to remain a key pillar of growth in 2026, but reliance on external demand is increasingly viewed as a vulnerability. “The absence of a swift resolution to the Iran war is likely to weaken global growth, reducing other economies’ capacity to absorb Chinese exports,” noted Eswar Prasad, a professor of economics and trade policy at Cornell University. “At a time when countries are focused on protecting their domestic economies, appetite for imports from China is clearly diminishing.”

China’s export growth has already begun to moderate, rising 2.5% in March from a year earlier—a notable slowdown that some analysts attribute in part to seasonal factors.

Looking ahead, economists suggest Beijing could still meet its annual growth target through additional policy support, particularly via public sector investment. However, such measures carry risks. While they may stabilize headline growth, a lack of meaningful improvement in household demand could deepen deflationary pressures and further entrench the economy’s dependence on exports over the longer term.