The news: China’s main economic indicators grew more than expected in the January-February period, in a sign that momentum was improving before the start of the US-Israeli attack on Iran.
The context: The Chinese National Bureau of Statistics reported an industrial production increase of 6.3% year-on-year, while retail sales rose 2.8%, both topping estimates according to economists polled by Bloomberg.
The country’s economy unexpectedly got off to a strong start in 2026 after ending the prior year with its slowest growth due to stringent covid lockdowns, which saw fourth-quarter gross domestic product to decelerate to 4.5%.
However, the economic indicators have not factored in the escalating conflict in the Middle East which has caused new disruption to global trade. While China is less vulnerable to oil price swings, its exports are expected to be impacted as a result of global inflation.
Beijing has since lowered its annual growth target to 4.5%-5%, its most modest target since 1991. While exports had exceeded expectations in the first two months of 2026, the outlook remains clouded by the duration and intensity of the conflict.
What they said: “The market is taking a sharp dive as the Iran war intensifies. If the conflict drags on, the market turmoil could spill into the real economy,” Bloomberg economist David Qu said.
“For China, the main risk isn’t inflation. It’s the secondary shock; a sharp downturn in global demand for exports. That could add to the challenge of achieving the government’s growth target,” he added.