The Iran war has exposed a key fault line: as the world’s biggest energy importer and a heavily export-reliant economy, China is vulnerable to an oil shock that is already slowing trade, lifting factory costs and darkening the outlook for the year.
Data due out today is expected to show gross domestic product (GDP) grew 4.8% in January-March from a year earlier, quickening from a three-year low of 4.5% in the October–December quarter, according to a Reuters poll.
GDP growth is expected to slow to 4.7% in the second quarter, dragging the full-year expansion to 4.6% in 2026 from last year’s 5.0%, the poll showed, broadly in line with the official target of 4.5%–5.0%.
“China’s exports remain a key growth engine in 2026, but the recent energy shock has shifted the focus toward the sustainability of external demand,” Xinquan Chen, China economist at Goldman Sachs, said in a note.
“While China’s production is relatively resilient, its key trading partners – particularly lower-income emerging-market economies that account for nearly 40% of exports – are increasingly exposed to stagflation risks.”
Goldman Sachs is tipping first-quarter GDP growth at 4.7%.
China’s exports grew just 2.5% in March year-on-year, slowing sharply from 21.8% in January–February as the conflict drove up energy and transportation costs and weighed on global demand, though analysts cautioned the figure was also distorted by seasonal factors.
For the January-March period, exports still rose 14.7% from a year earlier, well above the full-year growth of 5.5% in 2025.
Citi analysts maintained their forecast of 5% GDP growth for the first quarter, citing the solid export performance.
“That said, we are increasingly attentive to secondary demand effects should the conflict persist,” they said in a note.
Early signs of strain are emerging. China’s factory‑gate prices rose in March for the first time in more than three years, signalling that energy-driven cost pressures are seeping into the world’s second-biggest economy and threatening already-thin corporate margins.
On a quarterly basis, the economy is forecast to expand 1.3% in January-March, compared with 1.2% growth in October-December, the poll showed.
The government is due to release first quarter GDP figures, along with March activity data, at 2am on Thursday.
The March numbers are expected to show weakening consumption and factory output, partly offset by firmer investment.
Retail sales, a key gauge of consumption, are forecast to grow 2.3% in March year-on-year, down from 2.8% in January-February. Factory output growth is expected to slow to 5.5% in March, from 6.3% in the first two months.
Growth of fixed-asset investment is forecast to edge up to 1.9% in the first quarter from 1.8% in January-February – when infrastructure investment jumped 11.4% year-on-year.
Policy support
China has pledged to step up spending on major infrastructure and public services to help meet the 2026 growth target, the first year of the new five-year plan.
Fiscal expenditure rose 3.6% in January–February, picking up from a 1% increase in 2025 and adding to signs of stronger fiscal support.
Beijing has set a budget deficit of around 4% of GDP for 2026 and lined up heavy bond issuance to support growth, while the central bank has pledged to keep policy accommodative despite limited room to cut rates as inflation edges higher.
China’s Politburo, a top decision-making body of the ruling Communist Party, is expected to meet later this month to assess the economic outlook.
Policymakers have acknowledged an “acute” imbalance between strong supply and weak demand, and have vowed to “significantly” lift household consumption’s share of the economy over the next five years, though no specific target has been set.
Analysts polled by Reuters expect the central bank to keep the benchmark one-year loan prime rate unchanged through the end of 2026, while cutting banks’ weighted-average reserve requirement ratio by 20 basis points in the third quarter of the year.