San Francisco Frontiers - China's economy beats forecasts, but war darkens outlook

The figures came despite a surge in world energy prices caused by the US-Israel war on Iran, which has stymied shipping through the crucial Strait of Hormuz, through which a fifth of the world's oil and natural gas passes.

Analysts say China's diversified energy supply shields it from immediate shocks, though a potential global downturn caused by the war could weaken demand for its exports, which have been propping up the country's economy.

Gross domestic product in the world's second-largest economy expanded 5.0 percent year-on-year in January-March, according to the National Bureau of Statistics (NBS).

The reading was slightly higher than an AFP forecast of 4.8 percent based on a survey of economists.

During the first quarter, China's economy "achieved a strong start to the year, further demonstrating its resilience and vitality", the NBS said in a statement announcing the data.

The reading came days after the International Monetary Fund cut its 2026 global growth projection, warning that the world economy could be "thrown off course" by the Middle East war.

It also reduced its forecast for China to 4.4 percent growth, from a previous estimate of 4.5 percent.

"The global economy is facing this next test of resilience as signs of unevenness lie beneath the surface," it said, noting that China's "domestic activity -- especially in the housing sector -- lags behind exports".

Beijing has set a 2026 target of 4.5-5.0 percent growth -- the lowest in decades.

A years-long crisis in the property sector and a persistent slump in domestic spending have left leaders reliant on exports to meet growth targets.

- Trade headwinds -

Outbound shipments have boomed, exemplified by the country's whopping $1.2 trillion trade surplus last year.

But data this week showed export growth slowed sharply in March, indicating that war in the Middle East was already taking a toll.

Thursday's NBS data also showed retail sales grew 1.7 percent on-year in March, well short of a Bloomberg forecast of 2.4 percent.

Industrial production rose 5.7 percent, the NBS said, beating a Bloomberg estimate of 5.3 percent but well down from the 6.3 percent seen in January and February combined.

The first-quarter acceleration in growth was fuelled by exports, Zichun Huang of Capital Economics wrote in a note.

"We think growth will soften a bit over the rest of the year," she said.

"While the Chinese economy is holding up well, it is becoming ever more dependent on external demand," she said, noting that the Iran war "is likely to add to this trend".

A major international trade fair kicked off this week in Guangzhou -- a metropolis in China's southern manufacturing heartland -- where attendees told AFP the war is impacting their business.

Chinese exporters and Middle Eastern buyers at the opening day of the Canton Fair on Wednesday gloomily told AFP the Iran war had pummelled orders and led to price hikes.

Wang Jun, the deputy head of China's customs administration, this week acknowledged "many uncertainties and instabilities in the external environment".

"The impact of international geopolitical conflicts on global industrial and supply chains is still evolving in a complex manner," he said.

T.Martin--SFF