China: Growth resilience and delayed easing – UOB

UOB economist Ho Woei Chen assesses China’s stronger 1Q26 Gross Domestic Product (GDP) data and its implications for policy. Despite real GDP rising 5.0% year-on-year, the team keeps its 2026 growth forecast at 4.7% due to external headwinds and weak domestic demand. Resilient activity and contained inflation reduce near-term rate-cut prospects, with a modest 10-basis-point easing now projected in 3Q26.

Solid GDP but cautious policy outlook

"Despite the stronger start to the year, we are maintaining our forecast for China’s GDP growth at 4.7% for 2026 due to greater external headwinds as supply disruption and high oil prices dampen the global growth outlook and pose risks to China’s exports. This assumes GDP growth easing to around 4.6%-4.8% y/y in the next three quarters. It is also premature to fully assess the impact of the Middle East conflicts on China’s economy with strong technology-driven demand mitigating the downside risks in the near-term."

"Overall momentum stayed positive as well with m/m gains at 0.52% in Mar from 0.99% in Feb and 1.68% in Jan after three preceding months of contraction. While the government will increase high-tech investments to boost its economic resilience, the investment outlook is clouded by weak domestic demand and confidence while strained finances limit the scope of support from the local governments. Externally, the uncertainties from the Middle East war as well as US’ trade probes into its trading partners are the key headwinds in the near-term."

"The current low domestic inflation is expected to cushion the external impact from higher global crude oil prices. The government’s regulation of refined oil prices as well as room for subsidies to offset higher oil prices may also help to mitigate the impact on inflation. Our revised forecast for 2026 headline CPI is at 1.3%, which remains well-below official target of 2%, leaving ample room for the PBOC to maintain its “moderately loose” monetary policy stance."

"With China’s 1Q26 GDP growth at the top of the official 4.5%-5.0% target, the likelihood of near-term rate cuts has diminished. While we maintain our baseline forecast of a 10-bps cut to the policy interest rates, we have pushed back the timing to 3Q26 from 2Q26 due to the heightened uncertainties from developments in the Middle East. In this context, targeted monetary easing and structural support measures are likely to assume greater importance."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)