After a turbulent year marked by the trade war and domestic headwinds, China will head into 2026 cautiously as it grapples with structural challenges to growth.
Global investors are watching closely to see how Beijing works to shore up confidence, double down on strategic industries and mitigate overcapacity, all while navigating a fast-evolving geopolitical environment.
In this explainer, the South China Morning Post distils forecasts from major investment banks and economists on what to expect in 2026, also the first year of the next five-year plan – a socio-economic blueprint that typically sets the tone for policy direction.
GDP outlook
There is consensus among major financial institutions that China’s economy will grow moderately in 2026, shaped by supportive policy measures and global pressures.
Goldman Sachs expects real gross domestic product to expand 4.8% next year, slightly down from 5% in 2025, while Morgan Stanley also projects 4.8% growth. The Economist Intelligence Unit (EIU) forecasts 4.6% growth, “as China gradually targets economic expansion of around 4% over the next decade to meet its 2035 development goals”.
Other institutions hold a more conservative outlook. S&P Global Ratings raised its 2026 forecast to 4.4%, citing lower US tariffs, subdued domestic demand and slower export growth. The International Monetary Fund projects 4.2% growth, pointing to external headwinds and structural challenges.
Fiscal and monetary policy
Policy easing in 2026 is expected to continue, as Beijing works to stabilise growth amid slowing investment and consumption.
Morgan Stanley expects policy rate cuts of 10 to 20 basis points and a 25 to 50 basis point reduction in banks’ required reserve ratio, seen as largely symbolic to bolster market confidence.
The magnitude, however, “would be constrained by banks’ margin pressures, and interest rate transmission could be weak given soft credit demand,” Morgan Stanley said. Policymakers could lean on targeted relending programmes to support the economy, it added.
China Galaxy Securities Research Institute said macro policies would maintain “continuity and stability”, with a stronger focus on domestic circulation.
Monetary policy would stay accommodative, it added, aimed at full employment and financial stability – with expected rate cuts of 10 to 20 basis points and a 50 basis point cut to the required reserve ratio.
In terms of fiscal policy, it estimated a 4% deficit ratio, 1.3 trillion yuan (US$183.7 billion) in special bonds, 200 billion yuan to support bank capital and 4.8 trillion yuan in new local government special bonds.
Li Xunlei, chief economist at Zhongtai Financial International, noted that “2026 will still face significant pressure to stabilise growth” after it was front-loaded in 2025.
Local debt maturities, low marginal propensity to consume and ongoing household balance sheet contraction – “loans are low, deposits high” – weigh on investment and consumption, he added.
“If the central government expands beyond expectation ultra-long-term bond issuance to address local debt and stabilise the property market, and if the PBOC [People’s Bank of China] expands its balance sheet to absorb these bonds, this will greatly boost market expectations for economic growth.”
The geopolitical landscape
Many economists believe US-China trade tensions are likely to ease in the new year.
The EIU said direct confrontation would likely be dialled down, as “China’s export controls on rare earths have proved to be a trump card in preventing further US sanctions and escalations, and will serve as a sustained deterrent”.
Rivalry would not die away, however, continuing in more indirect forms, it added.
China’s commitment to self-sufficiency, reinforced at the fourth plenum of the ruling Communist Party, is expected to accelerate efforts to substitute US components with domestic alternatives, even among private firms, it said.
“Meanwhile, third countries will become increasingly important battlegrounds for influence: the US and its allies will press China to adjust its stance on Russia as long as the war in Ukraine grinds on; competition for rare earth supplies and refining capacity will intensify.”
The rise of right-wing leaders in Latin America could drive their countries closer to the West, it added.
Deutsche Bank Research said the US-China rivalry would continue to affect the global economic landscape in 2026, while renewed tensions over trade and technology could not be ruled out.
Li of Zhongtai Financial said the US appears to have made concessions, but in the long term, both sides aim to expand their industrial chains to avoid being “choked” by the other.
“Cooperation is only a strategy; competition is the long game,” he added.
Trade
Market projections for China’s exports point to a mixed picture, with growth expected to moderate in 2026 but remain resilient amid structural competitiveness and geopolitical pressures.
Morgan Stanley said it expects export growth to soften, “reflecting payback from earlier front-loading and less support from currency depreciation”.
However, “overall momentum [is expected] to remain robust, underpinned by supply chain competitiveness and stable global growth,” the bank said.
Goldman Sachs said export growth is likely to remain solid in the coming years, with an annual growth rate of about 5% to 6%, in contrast to the global trade average of 2% to 3%.
Li of Zhongtai Financial, however, predicted that external demand in 2026 would be weaker than this year, as the effect from US importers front-loading orders fades and high base levels for exports to emerging markets curb growth.
Trade volumes between China and both the US and Japan are expected to decline, while tariff risks from non-US economies are rising amid pressure to choose sides, he said.
“Against this backdrop of broad decoupling, the outlook for Chinese exports remains muted.”
Property sector
The property market will remain downbeat in 2026, as the downturn was extreme and could take years to run its course, though a turning point may be in sight, many institutions and economists said.
Housing would continue to be “a drag on the broader economy in the coming years”, but “the size of this drag should shrink going forward,” according to Goldman Sachs.
The property market’s negative impact on annual real GDP growth was estimated to be about 2 percentage points per year in 2024 and 2025, the bank said, but is likely to narrow by 0.5 percentage points per year over the next few years.
The EIU cited early signs suggesting China’s housing market could be nearing a bottom.
China’s position is still more favourable than Japan’s, whose property market downturn coincided with the Asian financial crisis and the 2008 global financial crisis. But a US-style rebound after five years is equally unlikely, given the American recovery followed a far deeper and more brutal correction, the EIU said in a report published earlier this month.
Li from Zhongtai said hi-tech development cannot substitute for the role real estate has long played in China’s economy.
“In 2026, the property sector will continue to drag on fixed-asset investment, while manufacturing investment is already losing momentum, as excess capacity weighs on firms’ willingness to invest.”