Summary of the 2026 China Economics Outlook Industry Overview - **Industry**: Chinese Economy - **Focus**: Economic growth, inflation trends, fiscal policy, and investment dynamics Key Points Economic Growth Projections - **Nominal GDP Growth**: Expected to be subdued at **4.1%** in 2026, with a rebound to **4.8%** in 2027 [3][10][11] - **Real GDP Growth**: Projected at **4.8%** in 2026 and **4.6%** in 2027, down from approximately **5%** in 2025 [10][11] - **CPI and Deflation**: CPI is expected to remain low due to property market drag and weak wage growth, with a gradual shift from deflation to lowflation anticipated by 2027 [4][80] Inflation Dynamics - **GDP Deflator**: Expected to be **-0.7%** in 2026, turning slightly positive at **0.2%** in 2027 [80] - **CPI Trends**: Core CPI is projected to remain subdued until **2H26-2027**, with gradual improvements expected as property market pressures ease [80][82] Policy and Fiscal Measures - **Fiscal Policy**: Modestly expansionary with an augmented fiscal deficit expected to widen by **0.5ppt** of GDP, focusing on technology localization and infrastructure [5][55] - **Monetary Policy**: Anticipated policy rate cuts of **10-20bps** and RRR reductions of **25-50bps** in 2026 to support fiscal measures [59] - **Public Spending**: Shift towards public services with growth in public consumption expected to reach **5.3%** in 2026 and **5.5%** in 2027 [25][26] Investment Trends - **Investment Growth**: Real gross fixed capital formation growth projected to remain soft at **2.4%** in 2026 and **2.2%** in 2027, influenced by anti-involution policies and local government financing constraints [31][32] - **Manufacturing Investment**: Expected to grow at low single digits due to overcapacity and deflationary pressures [33][36] - **Property Sector**: Continues to face significant challenges with high inventory levels and weak demand, leading to a contraction in property investment [35][41] Consumption Patterns - **Household Consumption**: Expected to slow to **4.2%** in 2026, with a rebound to **4.4%** in 2027 as labor market conditions improve [15][19] - **Social Welfare Spending**: Gradual increases in social welfare spending anticipated, focusing on education, healthcare, and elder care [18][25] Risks and Challenges - **Economic Risks**: Potential for renewed trade tensions and a US recession could exacerbate supply-demand imbalances and deflationary pressures [6] - **Implementation Challenges**: Central government support for housing may face practical challenges in execution [5][56] Global Context - **Export Dynamics**: Net exports expected to contribute **1.3ppt** to growth in both 2026 and 2027, despite a slight moderation in export growth due to earlier front-loading effects [41][42] - **Global Demand**: Stable global growth projected at **3.1%** in 2026 and **3.3%** in 2027, supporting China's export resilience [43] AI and Technology Investment - **AI-Driven Growth**: Anticipated capex boom in AI-related sectors expected to offset property market drag by **0.2-0.3ppt** of real GDP in 2026-27 [47][48] Conclusion - The outlook for the Chinese economy in 2026 reflects a cautious approach to growth, with a focus on gradual rebalancing and addressing deflationary pressures while navigating global uncertainties and domestic challenges [68][79]