China’s economic growth slowed sharply between early April and late June, as weak domestic demand and the impact of the Iran war on oil prices overshadowed the country’s strong exports.

Official gross domestic product (GDP) figures showed the world’s second-largest economy grew 4.3% in the second quarter, below Beijing’s annual target, and after a 5% rise in the first quarter.

It comes a day after government data showed China’s exports rose 27% in June compared with a year earlier.

In March, China lowered its growth target to a range of 4.5%-5%, its lowest economic expansion target since 1991, a move that some analysts say gives officials more flexibility in managing the economy.

The announcement represents the first full quarter of GDP data since the start of the Iran war on February 28 and marks the lowest quarterly expansion since late 2022, as China emerged from its strict Covid-19 restrictions.

“There are more external factors of instability and uncertainty,” China’s National Bureau of Statistics said in a statement accompanying the figures.

He also noted an imbalance between strong supply and weak demand in the national economy.

Separate data released Wednesday highlighted the economic challenges Beijing faces at home, including a prolonged housing market slump and weak consumer spending.

New home prices contracted again, although the 0.1% drop in June was at a slightly slower pace than the previous month.

But retail sales rose 1% in June, improving from a 0.6% decline in May.

Fabien Yip, market analyst at investment platform IG, told the BBC that Chinese companies are absorbing higher energy and raw material costs “because cash demand is too weak to support it.”

The situation will become more difficult to manage the longer the war with Iran drags on, he added.

June customs data, released on Tuesday, showed that China’s technology exports were boosted by growing global demand for semiconductors to power artificial intelligence (AI) data centers.

Rising demand for Chinese electric vehicles (EVs) also gave a big boost to China’s exports, with monthly automobile exports surpassing one million for the first time.