Rabobank strategists assess how the US and Israel’s war against Iran could affect China. They note higher Oil and gas prices and global cost-push inflation, but argues China’s inflation is unlikely to force PBOC tightening. However, Rabobank cuts China’s 2026 Gross Domestic Product (GDP) forecast to 4.5%, with higher inflation and unemployment expected.

War-driven shocks and China’s resilience

“Oil and gas prices have shot up and have remained extremely volatile since the start of the US and Israel’s war against Iran, leading to upside inflation risks globally.”

“China has been well prepared for oil supply disruptions and could partially make up for the loss of oil imports from the Middle East via its vast reserves and diversification of its suppliers.”

“While much remains uncertain at the moment, we conclude that for now it seems unlikely that China’s inflation will rise to levels that would force the PBOC to act.”

“China’s economy will, however, be affected via lower exports to the rest of the world because of global cost push inflation and via lower domestic consumption.”

“We lower our GDP forecast to 4.5% for 2026 and see higher inflation and higher unemployment with inflation at 0.7% and unemployment at 5.4% in 2026.”

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