China’s economy grows 5% in Q1, largely shrugging off Iran war shocks

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China’s economy accelerated in the first quarter, expanding 5% from a year earlier as it largely held up despite spillovers linked to the Iran war, according to government data released Thursday. The figures covered January through March, a period that began as the war was launched and approached a seventh week by the time of the release.

The government said growth also rose 1.3% on a quarter-on-quarter basis from the final quarter of last year, described as the fastest pace in a year. Economists expected the release to come in weaker than it did, and the quarter was marked by a higher rate than the 4.5% growth reported for October through December.

The headline growth was paired with industrial and consumption data for March. China’s government reported industrial output increased 5.7% year-on-year, and the report said it beat market expectations as global demand for Chinese exports remained strong for sectors including electronic equipment, autos, semiconductors and robotics.

Consumption data were softer. The government reported retail sales rose 1.7% from a year earlier, described as worse than estimates and slower than the 2.8% growth in January and February, with the report pointing to sluggish domestic demand for consumer goods.

Economists said the near-term picture still depended on whether the Iran conflict stayed contained. The war has pushed energy prices higher, which worsens inflation and affects global economic growth, with officials and analysts focused on the risk that longer disruption could feed back into demand for Chinese exports.

Lynn Song, chief economist for Greater China at ING, said in the AP report that “China can likely weather short term disruptions, but a protracted war and higher for longer energy prices would likely start to bite into growth by the second half of the year.” The point of the forecast was that the shock could be absorbed quickly, but its persistence could change the trajectory of growth later in the year.

Eswar Prasad, a professor of economics and trade policy at Cornell University, said the war’s continuation could dent global growth and make it harder for other economies to absorb Chinese exports. He added that as governments try to protect domestic firms, households and economies from the fallout, “the appetite for Chinese imports is clearly shrinking,” according to the AP account.

The report also placed the quarter’s momentum in the context of China’s longer-running property downturn, noting that a years-long real estate sector slump has dragged confidence. It said China still met its targeted “around 5%” growth last year, powered by robust exports that helped drive its trade surplus to nearly $1.2 trillion despite tariff pressure tied to U.S. President Donald Trump.

Looking ahead, economists in the AP report said China could still meet its full-year target range of 4.5% to 5% for 2026 through policy support, but they warned that stimulus aimed at headline growth could intensify deflationary pressures and increase reliance on exports if household demand does not strengthen.