Media365
China’s economy is expected to have lost momentum in the second quarter of 2026, with growth likely slowing to 4.5 per cent year-on-year from 5 per cent in the January-March quarter, reinforcing expectations that Beijing could roll out additional fiscal support in the coming months.
According to a Reuters poll of 54 economists, the slowdown reflects weakening domestic demand, subdued private investment and the prolonged property sector crisis, even as exports continue to provide support amid strong global demand for AI-related products.
The projected growth rate also marks a downgrade from the 4.7 per cent forecast in a Reuters survey conducted in April and sits at the lower end of China’s official 4.5-5 per cent annual growth target.
Economists said China’s recovery remains increasingly uneven, with external demand masking persistent weaknesses at home.
Goldman Sachs analysts noted that while exports have continued to support headline economic activity, softer domestic demand has prevented meaningful improvements in employment and corporate profitability, limiting the broader benefits of export growth.
China’s export data, due on Tuesday, is expected to show another month of solid expansion, although at a slightly slower pace than May. Shipments have been supported by AI-driven demand, aggressive pricing by Chinese manufacturers and accelerated exports to the United States ahead of potential new tariff measures.
Investors are now closely watching the Politburo meeting expected later this month for signals on additional stimulus measures. However, economists believe policymakers are unlikely to announce aggressive support unless economic growth weakens more sharply, as Beijing remains focused on tackling industrial overcapacity and persistent deflationary pressures.
For the full year, China’s economy is expected to expand 4.6 per cent in 2026, slowing from 5 per cent in 2025, before easing further to 4.4 per cent in 2027, according to the Reuters survey.
On a quarterly basis, GDP growth is forecast to moderate to 0.9 per cent in the April-June period from 1.3 per cent in the first quarter. Official second-quarter GDP data, along with June retail sales, industrial production and fixed-asset investment figures, will be released on July 15.
Fiscal support likely, monetary easing limited
Economists expect Beijing to rely primarily on fiscal measures to stabilise growth, with the government likely to accelerate spending after a slower second quarter. China has set its 2026 fiscal deficit target at around 4 per cent of GDP and plans significant bond issuance to support the economy.
Capital Economics said stronger fiscal spending should help improve growth in the second half of the year, although persistent domestic overcapacity means the economy will remain heavily dependent on exports.
On the monetary policy front, analysts expect the People’s Bank of China (PBOC) to keep its seven-day reverse repo rate unchanged through 2026. The reserve requirement ratio (RRR) is also expected to remain steady until a possible 20-basis-point cut in the fourth quarter.
The central bank has kept key policy rates unchanged since May 2025, preferring targeted liquidity operations while continuing reforms to its monetary policy framework.
Meanwhile, China’s consumer inflation is projected to average 1.2 per cent in 2026, well below the government’s target of around 2 per cent, and remain at the same pace in 2027, highlighting continued weak price pressures.
