Economic growth rises in the first quarter of 2026

GDP reading: China's GDP increased 5.0% in annual terms in Q1, following a 4.5% expansion in the previous quarter and above market expectations.

Industry drives acceleration: Relative to the prior period's data, the reading for the industrial sector improved in Q1 (+4.9% on a year-on-year basis vs +3.4% in Q4). This was linked to strong external demand for Chinese goods; merchandise exports rose in Q1 at the fastest pace since Q4 2021. In contrast, the reading for the agricultural sector worsened in Q1 (+3.8% vs +4.2% in Q4). Finally, the variation in the services sector was the same as in the prior quarter (+5.2% in Q1 and Q4). Within services, retail activity was muted with just a 1.7% expansion. Moreover, fixed asset investment was similarly subdued, and the housing market remained mired in a steep downturn.

Panelist insight: On the outlook, ING’s Lynn Song said: “It's likely that 1Q26 growth is mostly insulated from the negative impact of the Iran war. China is well-placed to weather short-term disruptions, but could face more pressure if energy prices remain higher for longer. We could see a greater impact of higher prices on import costs and input costs in the months ahead. However, for now, this above-expectation growth at the start of the year is positive news for China's growth, helping it achieve this year's growth target of 4.5-5.0%. It gives policymakers some buffer to work with and potentially reducing the urgency to ramp up more aggressive stimulus.” United Overseas Bank’s Ho Woei Chen said: “Despite the stronger start to the year, we are maintaining our forecast for China’s GDP growth at 4.7% for 2026 due to greater external headwinds as supply disruption and high oil prices dampen the global growth outlook and pose risks to China’s exports. This assumes GDP growth easing to around 4.6%- 4.8% y/y in the next three quarters. It is also premature to fully assess the impact of the Middle East conflicts on China’s economy with strong technology-driven demand mitigating the downside risks in the near-term.”

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