China GDP beats forecasts as conflict pressures exports and demand

China posted a stronger-than-expected start to 2026 even as the Iran war rattled trade routes, lifted energy costs and darkened the outlook for the rest of Asia. Gross domestic product rose 5.0% year on year in the first quarter, beating a Reuters poll forecast of 4.8% and accelerating from 4.5% in the fourth quarter of 2025, which had been a three-year low.

The National Bureau of Statistics of China said first-quarter GDP reached 33,419.3 billion yuan, or about 33.4 trillion yuan, and expanded 1.3% from the previous quarter. Officials said the economy was supported by stronger production, improving market demand, stable employment and macro policy support, even as external shocks tested manufacturers and exporters.

The detail underneath the headline was mixed, but still solid enough to explain why the quarter surprised on the upside. Industrial output rose 6.1% in the first quarter, a sign that factories kept humming despite higher transport and input costs. Fixed-asset investment climbed 1.7% over the period, while retail sales increased 1.7% in March, showing that domestic demand remained positive but hardly vigorous.

Exports were the clearest contradiction in the data. Shipments abroad still rose 14.7% in January-March from a year earlier, but March exports slowed sharply to 2.5% year on year after surging 21.8% in the first two months. Analysts said the war has so far had limited spillover into China’s economy, but the pressure is showing up in higher energy and shipping costs and in weaker global demand, especially for a manufacturing base that relies heavily on foreign buyers.

That makes the durability of China’s resilience the central question. Beijing has set this year’s growth target at 4.5% to 5%, its slowest since 1991, and the International Monetary Fund trimmed its 2026 forecast to 4.4% this week during its Spring Meetings in Washington. The strong first quarter reduces the urgency for immediate stimulus, but policymakers could still turn to reserve requirement cuts or other measures if the conflict deepens, export momentum fades and already sluggish household spending remains pinned down by a prolonged property downturn. As the world’s biggest energy importer and the world’s second-largest economy, China can absorb a shock for now. The harder test is whether it can keep doing so if oil prices stay elevated and global trade weakens later in the year.