China’s economy is expected to have regained some momentum in the first quarter of 2026, supported by resilient export performance, according to a Reuters poll of economists.
Gross domestic product is forecast to have expanded by 4.8% year-on-year in the January–March period, accelerating from 4.5% growth recorded in the final quarter of 2025, which marked a three-year low.
On a quarterly basis, the economy is projected to have grown 1.3% in the first quarter, slightly higher than the 1.2% growth seen in the October–December period, reflecting a modest improvement in economic activity at the start of the year.
Growth expected to Slow through 2026
Despite the stronger start, economists anticipate that China’s growth trajectory will weaken over the remainder of the year.
The Reuters poll indicates that GDP growth could slow to 4.7% in the second quarter, with full-year expansion expected at 4.6% in 2026, down from 5.0% in 2025.
This outlook aligns broadly with the government’s official growth target range of 4.5% to 5.0%.
Analysts attribute the expected slowdown to external risks, particularly the ongoing Middle East crisis, which could weigh on global demand and corporate profitability.
While China has so far managed to absorb the economic shock with limited disruption, supported by large oil reserves, a diversified energy mix, and strict price controls, concerns are mounting over sustained higher energy costs.
Rising costs and pressure on corporate margins
Economists warn that persistently elevated oil prices are already increasing input costs for businesses, placing pressure on profit margins at a time when domestic demand remains subdued.
Analysts at Morgan Stanley noted, “Higher oil prices would hit China’s economy through terms of trade shock and downstream margin squeeze.”
However, they added, “But unlike many other net oil-importing countries, which face production disruptions owing to energy shortage and constrained policy space amid elevated inflation, China is better positioned.”
Early signs of strain are beginning to emerge.
Factory-gate prices rose in March for the first time in more than three years, suggesting that energy-driven cost pressures are starting to filter through the economy.
This trend could further compress already thin margins for manufacturers.
Export outlook faces uncertainty
Exports, a key driver of China’s economic growth, could also face headwinds if geopolitical tensions persist.
Economists caution that prolonged conflict in the Middle East may weaken the global economy, dampening demand for Chinese goods.
Upcoming data releases are expected to show that export growth cooled in March, highlighting the challenges facing external demand amid rising global uncertainty.
In response to economic challenges, Beijing has outlined modest stimulus measures.
The government has set a budget deficit of around 4% of GDP for 2026 and plans significant bond issuance to support growth.
Meanwhile, the central bank has pledged to maintain an accommodative monetary policy stance, despite limited room for aggressive rate cuts due to rising inflation.
Analysts at Societe Generale said, “With the 2026 growth target set at 4.5–5%, a strong first-quarter print should give policymakers room to hold off major stimulus at the late-April Politburo meeting despite Middle East-related energy risks.”
The Politburo is expected to convene later this month to review the economic outlook and policy direction.
Structural challenges persist
Policymakers have acknowledged an “acute” imbalance between strong supply and weak demand in the domestic economy.
Authorities have pledged to “significantly” increase the share of household consumption in economic growth over the next five years, though no concrete targets have been announced.
According to the Reuters poll, the central bank is expected to keep the benchmark one-year loan prime rate unchanged through the end of 2026.
However, economists anticipate a 20-basis-point reduction in banks’ reserve requirement ratio in the third quarter to support liquidity.
Consumer inflation is projected to rise modestly to 1.0% in 2026 from flat growth in 2025, before stabilising in 2027, indicating a gradual recovery in price pressures alongside economic activity.
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