China’s Stimulus Kept at Bay With Growth Set to Rebound Amid War

China’s growth likely rebounded in the first quarter of 2026, offering policymakers time to assess the impact of the Iran war on the world’s second-largest economy before stepping in with stimulus.Author of the article:You can save this article by registering for free here. Or sign-in if you have an account.(Bloomberg) — China’s growth likely rebounded in the first quarter of 2026, offering policymakers time to assess the impact of the Iran war on the world’s second-largest economy before stepping in with stimulus.Subscribe now to read the latest news in your city and across Canada.Subscribe now to read the latest news in your city and across Canada.Create an account or sign in to continue with your reading experience.Create an account or sign in to continue with your reading experience.Gross domestic product is expected to have expanded 4.8% from a year ago, according to the median forecast of economists polled by Bloomberg ahead of the official release on Thursday. That would be an acceleration from the 4.5% gain recorded in the final quarter of 2025, which was the weakest reading since the country reopened after Covid in late 2022.The US-Israel war against Iran probably only had a limited impact on activities so far, thanks in part to China’s moves in past years to strengthen energy security and insulate its economy from global ructions. Years of deflationary pressure have also blunted the potential for an immediate impact on consumer prices from higher oil costs. Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.But as imports of high-tech products jumped in March, driven in part by an investment boom in artificial intelligence, the goods trade surplus shrank almost 5% in the first quarter from a year ago in yuan terms. Although that could mean less support from net exports, strong global demand linked to AI is helping ward off external threats to Chinese companies at a time when the conflict in the Middle East is wreaking havoc on the world economy.A solid report would reduce the urgency for additional stimulus, especially after Beijing adopted a more flexible approach toward growth by lowering its GDP goal to a range of 4.5% to 5% — the lowest since 1991. A rising number of economists is forecasting the People’s Bank of China won’t cut interest rates this year, because the oil shock pushed up inflation expectations.“We expect policymakers to adopt a wait-and-see mode for now,” Macquarie Group Ltd. economists led by Larry Hu said in a report Friday. “China’s stimulus calculus will depend on the trajectory of the US economy and the ongoing AI boom. Both remain major tailwinds to exports, the key engine of China’s economy.”Other figures Thursday are likely to show that imbalances between the supply and demand sides of the economy persisted. Industrial output is forecast to grow 5.3% in March from a year ago. Even though that would be a step down from the 6.3% rise seen in the January-February period, it would likely be seen as a strong result, given that factories had more days off compared with 2025 due to a later-than-usual Lunar New Year holiday.That strength is partly a result of a 15% surge in exports in the first quarter from a year ago. A boom in AI investment is driving overseas sales of high-tech items such as chips, while Chinese green products like electric vehicles continue to grab more market share abroad. Retail sales are expected to rise just 2.4% in March, weakening from the 2.8% expansion in the first two months and reflecting frail household confidence. Domestic car sales contracted almost 8% in the first quarter from a year ago, partly due to the phasing out of government subsidies.

What Bloomberg Economics Says …“China’s GDP growth likely poked above 5% in the first quarter, lifted by supply. Production surged in the first two months of the year. High-frequency data suggest the Iran war had only a limited impact on activity in March. Demand tells a weaker story. Consumption growth likely edged lower.”— Chang Shu and David Qu; click here to read the full reportThe property market remained weak despite a rebound in transactions of existing homes in megacities like Shanghai. A proxy for outstanding mortgages declined more than 40% from a year ago in March — indicating people are still reluctant to take on more debt.Fixed-asset investment is forecast to increase 1.9% for the first three months of the year, an improvement from the 1.8% in the January-February period and the unprecedented contraction seen last year. Economists attribute the uptick to infrastructure projects having been delayed to early this year from late 2025. Some observers also pointed to an anomaly in the data that suggested last year’s drop might largely have been a result of temporary adjustments to statistical methods. Government bond sales, a key source of funding for construction projects, declined in the first quarter from a year ago.The International Monetary Fund slightly lowered its forecast for China’s growth this year in its latest World Economic Outlook. GDP is now expected to expand 4.4%, compared with the IMF’s estimate of 4.5% in January. Still, that’s a smaller downgrade than that for the global economy as a whole, in a scenario of a relatively short-lived conflict and moderate gain in energy prices this year. One consequence of the recent surge in oil prices: China could officially exit from economy-wide deflation after three straight years. Thursday’s figures may reveal that the GDP deflator — a broad gauge of prices across the economy — turned positive.That’s after data for March showed producer prices rose for the first time since 2022, and consumer prices continued their moderate gains. Still, analysts warn that such cost-driven inflation could be harmful to the real economy. Higher input prices are squeezing the profits of consumer-facing factories, which have already been suffering narrowing margins for several years. (Updates with IMF forecasts in fourth to last paragraph.)Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information.