BEIJING, May 18 (Reuters) – China’s growth lost momentum in April, with industrial output and retail sales both sharply undershooting expectations as the world’s second-biggest economy wrestled with higher energy costs from the Iran war and persistently weak domestic demand.
Better-than-expected exports and China’s domestic fuel-pricing controls have helped weather the energy shock, but higher input costs threaten to squeeze already weak factory margins and further dampen consumer spending if the conflict drags on.
Factory output grew 4.1% from a year earlier last month, compared with a 5.7% rise in March, data from the National Bureau of Statistics (NBS) showed on Monday, missing a Reuters poll forecast for 5.9% growth and marking the slowest growth since July 2023.
“The strong performance of the exporters helped to mitigate the weaknesses in domestic demand, but not enough to fully offset it,” said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management.
Exports gathered pace in April as factories raced to meet a wave of orders from AI-related industries and other buyers seeking to stockpile components amid fears the Iran war could push global input costs even higher.
Zhang didn’t expect the government to change its policy stance on just one month of weak data and said Beijing will likely reassess its policy stance in July when the second-quarter GDP data is available.
Retail sales, a gauge of consumption, rose just 0.2% in April, cooling sharply from 1.7% in March and marking the weakest gain since December 2022. The figures were also well below forecast centred on a 2% increase.
Household consumption has remained fragile. Domestic car sales dropped 21.6% in April from a year earlier, marking the seventh straight month of decline, even as automakers ramped up efforts to expand in overseas markets to offset weakness at home.
“Retail sales growth in the first four months of 2026 points to still-weak household demand, with consumers concentrating spending on selective discretionary and upgrade categories rather than broad-based consumption,” said Yuhan Zhang, principal economist at the Conference Board’s China Center.
He said the split highlights a two-speed recovery: steady spending on small lifestyle and tech upgrades, but weak appetite for big-ticket, credit-driven purchases tied to housing and income.
Adding to the gloom, fixed-asset investment contracted 1.6% in the first four months of 2026, compared with a 1.7% rise in the January-March period and a 1.6% expansion forecast.
Economists pointed to a drop in the official construction purchasing managers’ index, and heavy rainfall in parts of southern China as some of the factors dragging on investment growth.
FEW SURPRISES FROM TRUMP VISIT
The April figures offered early signs that China’s first-quarter momentum was already fading and came after U.S. President Donald Trump finished his state visit to China last week.
The summit delivered few surprises but eased tense relations between the world’s two biggest economies. China and the United States have agreed to expand agricultural trade through tariff reductions and tackle non-tariff barriers and market access issues, but substantive progress across trade and investment remained elusive.
China’s economy expanded 5.0% in the first three months of the year, at the upper end of Beijing’s full-year target range of 4.5% to 5.0%. But analysts have warned that the recovery is running on uneven ground as industrial output continues to outstrip domestic demand.
While a protracted downturn in the property market remains a drag on growth, the Middle East conflict has exposed the economy to external risks at a time of fragile consumption at home.
China’s property investment contraction widened in April year-on-year.
Top Chinese leaders have pledged to strengthen the country’s energy security, accelerate technological self-sufficiency and seek greater control of supply chains in response to external shocks.
The Politburo also reiterated China’s “proactive” fiscal stance and “appropriately loose” monetary policy, language broadly in line with previous meetings and suggesting no imminent additional stimulus plans.
(Reporting by Ethan Wang, Joe Cash and Ellen Zhang; Editing by Shri Navaratnam)
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