China: Growth resilience reshapes policy outlook – Commerzbank

Commerzbank’s Dr. Henry Hao notes that China’s Q1 2026 GDP grew 5.0% year-on-year, at the top of Beijing’s 4.5%–5.0% target, easing immediate pressure for aggressive stimulus. The report highlights a two-speed economy, with strong industrial output and infrastructure investment offsetting weak retail sales and a property downturn, and argues that resilient growth plus imported oil inflation will likely keep the People’s Bank of China from cutting rates this year.

Q1 strength, two-speed economy, policy

"Real GDP expanded by 5.0% yoy in Q1, marking the fastest pace in three quarters and outpacing the 4.8% consensus forecast. This acceleration from the 4.5% growth recorded in Q4 2025 places the economy at the top end of the government’s recently adjusted 4.5% to 5.0% target range. Hence, this resilient print grants Chinese authorities some breathing room, reducing the pressure to deploy aggressive macroeconomic support in the near term."

"Despite the strong headline GDP, March data underscored the entrenched structural divergence between factory floors and shopping malls. Factory floors continued to serve as the primary growth engine, with industrial production rising a solid 5.7% yoy in March, slightly higher than our expectation of 5.5%. While this beat expectations, it represents a moderation from the rapid expansion seen in the January-February period, a deceleration partially attributed to a seasonal drag from a later-than-usual Lunar New Year."

"In contrast, the consumer engine continues to sputter. Retail sales expanded by a meager 1.7% yoy in March, falling short of our forecast of 2.5% and weakening from the 2.8% pace set at the start of the year. This retail sales data highlights persistent household caution amid ongoing global uncertainty, the “payback effect” on durables trade-in programme and a bleak domestic job market."

"To counter this severe drag, the state has actively intervened; infrastructure investment picked up to 8.9% in Q1, fueled by an accelerated pace of government bond issuance that has been building momentum since late 2025. Adding to domestic headwinds, the surveyed urban jobless rate climbed to 5.4%, hitting its highest level in a year and further explaining the fragile state of consumer confidence."

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