China Economic Outlook

Goldman Sachs forecasts 4.7% real GDP growth for China in 2026, driven by tech and manufacturing amid ongoing property market struggles and fiscal expansion.

Key Takeaways

• 1.China real GDP is expected to grow by 4.7% in 2026, aligned with official targets despite energy supply shocks.
• 2.The property market has not yet reached a bottom, with prices likely needing 1-2 more years to stabilize.
• 3.The augmented fiscal deficit is forecast to widen to 12% of GDP in 2026.

Table of Contents

• Key China Macro Views
• GS China Forecasts for 2026
• We Recently Nudged Down Q2 Sequential Real GDP Growth Forecast While Raising Q3 Forecast
• An Increasingly Divergent Economy
• Tech Driving Both the Economy and the Market
• Negative Impact of the Iran War Started to Emerge in Q2 While High-tech and New Energy Sectors Remained Strong
• China's Significant Advantage in the Global Manufacturing Supply Chains
• Chinese Exports to EM Economies Continue to Outperform, And We Expect Export Growth to Remain Solid in the Coming Years
• Exports Have Increasingly Been Driven by Tech Products, and Price Effects Became More Visible in Recent Months
• China's Current Account Surplus Is Set to Rise Further; Exporters' FX Conversion Ratio Increased in Recent Months
• Property Sector Not Bottoming Yet, But Its Growth Drag May Shrink
• China's Demand for New Homes May Stay Low and Property Prices Likely to Take 1-2 More Years to Bottom Out
• Lessons of Hong Kong's Property Market Stabilization for Mainland Tier-1 Cities: Shenzhen and Shanghai Likely to Lead the Price Stabilization
• Further Housing Easing Efforts Needed to Stabilize Home Prices in Large Cities
• A Weak Labor Market Has Constrained Households' Capacity to Spend
• Effect of Government-subsidized Consumer Goods Trade-in Program Should Fade Over Time
• Policymakers Have Intensified Their Focus on Boosting Services Consumption
• Consumer Sentiment Stays Weak and Household Bank Deposits Remain Elevated
• We Expect Augmented Fiscal Deficit to Widen Further by 1pp of GDP to 12% in 2026, Although Fiscal Policy Tightened in Q2
• Breakdown of Our Augmented Fiscal Deficit Metric
• Fixed Asset Investment Data Exhibited Significant Volatility in Recent Quarters, With Continued Divergence Across Sectors
• Our China Investment Tracker Pointed to Only a Moderation in Real Investment Growth in Q2 vs. Q1
• Higher Energy Prices Lift PPI Inflation in 2026
• We Revised Up Our Headline CPI/PPI Inflation Forecast to 1%/2% in 2026
• We Do Not Expect PBOC to Cut Policy Rate This Year; PBOC Tightened Interest Rate Corridor and Started Overnight Reverse Repo Operation
• Household Loans Contracted While Corporate Loans Expanded; Credit Redirected From Property to High-Tech Sectors
• USD/CNY Fixing Continued to Decline
• We Expect a Gradual but Sustained RMB Appreciation Against USD Ahead
• We Expect Policy Easing to Continue in 2026, Despite Recent Tightening in Q2
• A Structural Transformation Underway
• China's 'Barbell Strategy' for High-Quality Growth in the 15th FYP
• Three Stages of Labor Market Adaption to AI Adoption
• Household Balance Sheet: Structural Shift from Property to Financial Assets Amid Ongoing Deleveraging
• RMB International Use Has Improved, But Still Trails China’s Global GDP and Trade Shares
• China's Augmented Government Debt Reached RMB 179tn in 2024 (133% of GDP)
• Local Officials' Incentive Also Matters for the Effectiveness of Policy Implementation
• Upcoming Key Macro Catalysts for China Markets

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