China's economic growth accelerated in the first quarter of 2026, with GDP rising 5.0% year-on-year, up from 4.5% in the fourth quarter of 2025, according to DBS Group Research economists. This growth was primarily driven by strong external demand and resilient industrial production, while domestic demand in areas such as consumption, investment, and credit remained weak due to persistent property sector stress and ongoing efforts to reduce excess capacity [1].
Exports demonstrated robust momentum, increasing by 14.7% year-on-year in Q1, although there was some moderation in March attributed to disruptions in the Middle East. Industrial production also showed strength, growing 6.1% year-on-year in Q1, despite the implementation of 'anti-involution' measures aimed at curbing excess capacity [1].
Price indicators improved, with the Producer Price Index (PPI) returning to positive territory at 0.5% year-on-year in March after 41 months of contraction. This turnaround was driven by higher raw material prices, which were influenced by supply disruptions linked to the Strait of Hormuz and ongoing capacity adjustments. The Consumer Price Index (CPI) also showed improvement, reducing the urgency for aggressive monetary easing [1].
As a result of these developments, DBS has revised its expectations for policy easing in 2026, now forecasting a 10 basis point cut in the 1-year Loan Prime Rate (LPR), down from the previously expected 20 basis points. This reflects a more measured policy stance in light of the improved economic and price dynamics [1].
CONCLUSION
China's stronger-than-expected Q1 2026 GDP growth and improved price indicators have led DBS to scale back its forecast for monetary easing, signaling a more cautious policy approach. While external demand and industrial production remain robust, domestic demand continues to lag, highlighting ongoing structural challenges. The market is likely to interpret these developments as a sign of stability but with limited further policy support in the near term.