China recorded stronger-than-expected growth in the first quarter, surpassing forecasts by 0.2 percentage points, yet analysts warn that the risk of deflation—defined as falling prices amid economic stagnation—remains high and could intensify from the second quarter onward.
Despite the surprise performance, driven in part by an extended Lunar New Year holiday and delayed effects from the Middle East conflict that erupted in late February, underlying domestic demand continues to reveal weakness. This persistent weakness could bring deflationary pressures to the forefront in the coming months.
Though consumer prices rose 0.9% year-on-year in the first quarter—up 0.4 points from the previous quarter—experts caution that this modest improvement does not eliminate the broader threat of deflation, especially if consumption fails to sustain momentum.
Achieving the government’s annual growth target of 4.5% to 5% may still be undermined by these deflationary risks, which could negatively affect economic policy outcomes even if headline growth appears robust.
