China GDP beats forecasts at 5% despite Iran conflict risks– Can growth hold?

At a time when the world economies and global markets are reeling from the shocking aftereffects of the Iran conflict, China’s economy grew faster than expected, defying any global shock.

As reported by Reuters, China’s gross domestic product (GDP) surged by 5 percent in the first quarter of this year, compared to a year earlier.

The economists had predicted that China’s GDP would reach around 4.5-4.8 percent. However, the official data highlight the world's second economy’s resilience in the face of high-stakes conflict that shook other world’s economies, especially the Asian countries.

The recent official GDP figures are the first one to release since Beijing cut its annual economic growth target to a range of 4.5 to 5 percent, the lowest one since 1991.

Growth imbalance

China achieved this unexpected rebound on the basis of manufacturing. According to Kyle Chan, an analyst from the Brookings Institution, “cars and other exports were a major bright spot in the data.”

When it comes to property investment, the country is still struggling on this front.

First-quarter GDP growth surpassed expectations, exceeding both the forecasted 4.8 percent and the three-year low of 4.5 percent recorded in the previous quarter.

According to data released by the General Administration of Customs, the country’s exports showed a growth of 2.5 percent slower than previous figures.

Moreover, Beijing also experienced a surge in factory-gate prices driven by deflation in March for the first time in more than three years.

On the other hand, China’s imports also surged by 28 percent in March, leaving the country’s monthly trade surplus at just over $50 billion, the lowest in more than a year.

Will China’s economic outlook stay rosy?

A statistics bureau official characterized the performance as a "rare and commendable" achievement, though they cautioned that the "complex and volatile" global landscape remains a significant risk.

According to economics lecturer Yixiao Zhou from the Australian National University, China’s imports are likely to surge in the wake of the Iran war. Moreover, the analysts also warn of input costs-driven bad inflation in coming months that would hamper the growth.

"The solid start ​to the year on the back of strong export performance suggests the direct impact of the Middle East conflict remains contained for now," said Junyu Tan, North Asia economist at Coface.

“But the outlook ​is not all rosy despite China's relative resilience. The export engine could still be constrained by weaker global demand if the conflict persists,” Tan added.

Lynn Song, chief economist for Greater China at Dutch bank ING, explained, “China can likely weather short-term disruptions, but a protracted war and higher energy prices would likely start to bite into growth by the second half of the year.”