ABN AMRO's Senior Economist Arjen van Dijkhuizen reviews China’s macro outlook after the Iran conflict, noting stronger early‑2026 data but slightly lower GDP forecasts. The bank now projects China’s 2026 growth at 4.6% and 2027 at 4.5%, while raising CPI forecasts for 2026 and 2027 as higher energy prices push inflation temporarily higher and delay further monetary easing.

Stronger data but conflict-driven headwinds

"China’s economy started the year on a strong footing (also see our recent China Macro Watch, On Iran, Trump-Xi, NPC and bullish data). The biggest improvement came from fixed investment, which turned back to growth in January/ February (+1,8% y/y) compared to a contraction of -3.8% in 2025. This turnaround was led by infrastructure spending, driven by local government bond issuance, but also by faster manufacturing investment and an easing slump in property investment."

"As the world’s largest energy importer and the key destination of energy shipments crossing the Strait of Hormuz, China is impacted by the Iran conflict. We still think there are various cushioning factors (e.g. high oil buffers, access to Russian energy) that will mitigate the impact. However, downside risks have risen due to the conflict, taking into account direct effects, and also indirect ones such as the hit to global demand."

"All in all, we tweaked our quarterly GDP growth profile somewhat (stronger Q1, weaker Q2), and as a result slightly cut our annual growth forecast for 2026, to 4.6% (from 4.7%) – within the government’s target zone of ‘between 4.5% and 5%’, as announced earlier this month. We slightly raised our 2027 growth forecast to 4.5%, from 4.4%."

"Despite ongoing domestic excess supply, the spike in energy prices will lead to higher (cost-push) inflation in the coming months, even though the impact is cushioned. Before the conflict erupted, CPI inflation rose to a two-year high of 1.3% y/y in February, driven by LNY spending, food prices and base effects. Core inflation jumped to a seven-year high of 1.8% y/y, while annual producer price deflation eased further."

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