• Growth across major economies has been uneven, with the UK and China showing resilience, although rising energy prices threaten to undermine that momentum.
  • Germany’s outlook has weakened further, with growth forecasts revised lower as persistent inflation and energy pressures weigh on the economy.

Major economies delivered a mixed growth picture in the first quarter, with some showing unexpected resilience despite the drag from high energy prices.

The UK and China both managed to expand, but economists are still wary.

If energy costs remain high, they could quickly erode those gains and put fresh pressure on growth in the months ahead.

UK Economic Growth Beats Expectations Despite Looming Threats

The UK economy delivered an upside surprise in February, with GDP growing 0.5% month-on-month, its biggest increase since January 2024 and comfortably ahead of the 0.2% estimate.

The report suggests the economy was holding up better than expected before the Middle East conflict began. ⁽¹⁾

Even so, economists are still wary. The UK is still exposed to the economic fallout from the conflict, with imported energy costs and persistently high inflation leaving growth vulnerable in the months ahead.

China Sees Strong Start Before War Impact Hits

China’s economy gathered steam in the first quarter, as robust exports offset sluggish domestic consumption, though an energy shock stemming from the Iran war threatens to reduce global demand and undercut that momentum.

China’s economy remained robust in Q1, coming at 5% QoQ and surpassing its forecast of 4.8%, driven by strong exports. However, China downgraded its growth target this year to a range of 4.5-5% ⁽²⁾

Retail sales showed growth of 1.7% YoY in March, less than February’s 2.8% figure, while industrial output expanded 5.7%, higher than February’s 6.3%. Strong growth has reduced the process of economic support from fiscal stimulus, with policies now focused on consumption and investment. ⁽³⁾

As the world’s largest oil importer and a heavily export-reliant economy, China is vulnerable to an oil shock that’s already slowing trade, pushing up factory costs, and darkening the outlook for the rest of the year.

However, oil shipments from Iran and other countries headed to China through the Strait of Hormuz account for just 6.6% of China’s total energy consumption, far lower than other Asian countries. ⁽⁴⁾

Germany Slashes Growth Forecasts, Raises Inflation Outlook

Germany, an economy that was hoping to see the light soon from improving economic conditions, had its growth forecast downgraded by the government for this year and 2027, while raising its forecasts for inflation in response to higher energy prices. ⁽⁵⁾

Germany’s economy is now expected to grow by 0.5% in 2026, down from an earlier forecast of 1%, and by 0.9% in 2027, revised lower from 1.3%. ⁽⁶⁾

That weaker outlook reflects a broader downgrade from Germany’s leading economic institutes, which cut their joint 2026 growth forecast to 0.6% from 1.3%, while also lowering their 2027 estimate to 0.9% from 1.4%. ⁽⁷⁾

Europe’s largest economy has struggled to regain momentum since the pandemic. Rising competition from China and persistently high energy costs have both added pressure, first after the war in Ukraine and now again with the Iran conflict.

Together, these forces are putting fresh strain on Germany’s export-driven growth model.

Sources: ⁽¹⁾ ONS, ⁽²⁾ ⁽³⁾ ⁽⁴⁾ CNBC, ⁽⁵⁾ ⁽⁶⁾ ⁽⁷⁾ Reuters