China's GDP Growth Slows to 4.3% in Second Quarter as Iran War Hits Oil Prices

China's economy grew by 4.3 per cent in the second quarter of 2026, the slowest pace since late 2022, as the war between Israel and Iran pushed up oil prices and weak domestic spending continued to weigh on activity, according to data from the National Bureau of Statistics. The figure undershot the government's annual target range of 4.5 to 5 per cent.

The reading marked a slowdown from the 5 per cent growth recorded in the first quarter and came despite a 27 per cent year-on-year jump in exports in June. For the first half of 2026 overall, the world's second largest economy grew 4.7 per cent, generating roughly 69.57 trillion yuan (around $10.25 trillion) in output, the Bureau said.

Exports Surge As Domestic Spending Lags

The National Bureau of Statistics pointed to 'more external instability and uncertainty factors' as a drag on growth, alongside what it called an imbalance between strong supply and weak domestic demand.

China's exports showed a contrasting trend. Customs data released a day earlier showed exports jumped 27 per cent year-on-year in June, driven largely by global demand for semiconductors used in AI data centres. Monthly car exports topped one million for the first time, supported by rising international demand for Chinese electric vehicles.

Retail sales, a key gauge of domestic consumption, rose 1 per cent in June, recovering from a 0.6 per cent fall in May. Investment in the property sector fell 18 per cent in the first half of the year, with the prolonged real estate downturn continuing to affect household confidence.

Iran War Adds Pressure To Costs

The second-quarter data covers the first full quarter since the outbreak of the US-Iran war on 28 February, a conflict that has driven up global oil prices and disrupted trade flows across the Middle East.

Analysts at Macquarie noted that external demand had been the 'bright spot' of China's economy so far in 2026, adding that the strength of that demand would influence how much support Beijing needs to provide domestically.

Fabien Yip, a market analyst at IG, said that growth remained 'very much powered by manufacturing' rather than the consumption-led rebalancing Beijing had aimed for when it set its growth target earlier in the year.

She said the absence of large stimulus packages meant domestic demand remained 'at a pretty fragile stage for now'.

China has also sharply cut its crude oil imports since the war began, down 41.3 per cent year-on-year, even as overall imports rose 36 per cent to a five-year high on the back of demand for other goods.

Target Cut Earlier In The Year

Beijing had already lowered its 2026 growth target to a range of 4.5 to 5 per cent in March, the lowest goal it has set since it began publishing such figures in 1991.

Some analysts have suggested the lower target gave officials more room to acknowledge existing weakness in the economy rather than signalling a sudden deterioration.

The property downturn remains one of the clearest drags on the economy. New home prices fell again in June, though at a slightly slower pace of 0.1 per cent compared with May, reflecting a market that has yet to stabilise after years of decline.

China's slowdown carries weight beyond its own borders, given its role as the world's second largest economy and a major buyer of commodities and exporter of manufactured goods.

A widening gap between a growing export sector and a weaker domestic market could shape decisions on stimulus in Beijing, while continued reliance on exports is already fuelling trade tensions with the European Union and other trading partners debating how to respond to the rise in Chinese goods.