China's economy accelerated in the first quarter of this year, expanding 5% from a year earlier as it largely shrugged off impacts from the Iran war so far, according to data released on Thursday.
The January-March data released by the government, covering a period during which the Iran war began, was better than what economists expected and up from the 4.5% growth seen in the October-December quarter.
Longer-term impact more important for China
Economists expect China to be able to weather short term impacts from the Iran war, now in its seventh week. The war is pushing energy prices higher, worsening inflation and impacting global economic growth. But longer term, areas including global demand for Chinese exports could take a hit.
The International Monetary Fund this week lowered its economic growth forecast for China to a 4.4% expansion for 2026. Chinese leaders last month set an economic growth target of 4.5% to 5% for this year, predicting the slowest rate of growth since 1991.
A years-long real estate sector slump in China has dragged consumer and investor confidence, but the country managed to achieve its targeted "around 5%" growth last year, powered by robust exports that drove its trade surplus to a record nearly $1.2 trillion despite U.S. President Donald Trump's higher tariffs.
"The lack of a speedy resolution to the Iran war is likely to dent global growth, which will negatively impact other economies' ability to absorb Chinese exports," said Eswar Prasad, a professor of economics and trade policy at Cornell University.
Global pressure could slow China exports
On Tuesday, China reported its exports grew 2.5% in March from a year ago, significantly slowing from the previous two months.
"At a time when all countries are trying to protect their firms, households and economies from the fallout of the Iran war, the appetite for Chinese imports is clearly shrinking," he said.
China is still likely to attain its economic growth target of 4.5% to 5% this year through policy stimulus, economists say, but there are other concerns.
A boost in public sector investment, Prasad said, would stabilise headline growth but, unless household demand strengthens significantly, could intensify underlying deflationary pressures and increase the economy's reliance on exports down the line.
