The news: The war in Iran could deepen China’s economic slump as rising oil prices and geopolitical uncertainty weigh on manufacturing output and consumer confidence.

• Retail sales rose just 0.2% YoY in April, well short of expectations for 2% growth and the smallest increase since December 2022, when China began loosening COVID-19 restrictions.
• Industrial output increased 4.1% YoY, a deceleration from 5.7% growth in March and below estimates for a 5.9% increase.

What it means: April’s weak showing points to more trouble ahead. Conflict in the Middle East is poised to slow global growth, which would be particularly painful for China given its export-driven economy. At the same time, consumers and producers face higher energy and input costs, which could reignite inflation and exacerbate Chinese shoppers’ price sensitivities.

Even China’s government is warning obliquely about the risks ahead. Fu Linghui, a spokesperson and chief economist for the National Bureau of Statistics, pointed to the “contradiction of strong supply and weak demand” and the “complex and severe” international environment as potential challenges. However, despite clear stressors, Beijing continues to be resistant to broad stimulus measures, which likely means slower growth this year.

Implications for retailers: China is no longer a guaranteed growth engine for Western brands. While we expect retail sales to rise 5.2% this year, the advantage lies with local companies that better understand Chinese consumers’ needs and have more experience selling on platforms like Douyin, Xiaohongshu, and Kuaishou.

In this environment, retailers should localize as much of their product development and marketing as possible to stay relevant with shoppers.

Go further: Check out our Live FAQ: The Marketing & Commerce Impacts of the War in Iran on the Middle East and Asia.

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