Goldman Sachs published a report indicating that the Chinese economy has undergone significant changes in recent years. By the end of 2025, China's export market share in the United States and the number of new housing starts domestically will have reverted to levels seen in the early 2000s, erasing the growth achieved since joining the World Trade Organization in 2001 and the housing reforms of 1998. The main challenge for the Chinese economy lies in finding new sources of growth.
Although Chinese exporters have successfully expanded into non-U.S. markets, supporting the bank's optimistic outlook on Chinese exports, building an economy driven by consumption and services will take many years, even decades. The bank expects export volume (real value) to grow by about 8% in 2025, followed by a 5% increase in 2026. Strong goods exports, subdued imports due to ongoing import substitution, and policies promoting service exports collectively support the bank's forecast: China's current account surplus is expected to expand from 3.6% of GDP in 2025 to 4.2% in 2026, far exceeding general market expectations.
The real estate market may continue to decline in 2026, but its drag on GDP should lessen as the industry's share of the economy has significantly decreased. The weak labor market is also expected to persist, driven by structural factors such as job displacement due to artificial intelligence and related technologies, as well as cyclical challenges from the prolonged downturn in real estate.
Goldman Sachs anticipates that household consumption growth will slow in 2026, but government consumption is expected to accelerate and offset the weakness in private consumption. Recent policy announcements indicate that the government's old-for-new consumer goods program will continue into 2026, helping to prevent a sharp decline in retail sales. However, the bank believes that with government measures and potential structural advantages in place, service consumption growth will outpace goods consumption.
Due to financing restrictions on local governments and "anti-involution" actions targeting overcapacity in certain industries, investment growth slowed in the second half of 2025. With policymakers committing to "stabilize investment" in 2026, the bank expects the growth rate of gross fixed capital formation to rebound from 1.5% in 2025 to 3.5% in 2026. Overall, the bank forecasts that China's real GDP will grow by 4.8% in 2026, higher than the general market expectation of 4.5%.
The re-inflation process in China may still be slow, but based on the government's "anti-involution" efforts and low base effects, year-on-year inflation should rise. The bank expects CPI inflation to increase from 0% in 2025 to 0.6% in 2026, while PPI inflation is projected to rise from -2.6% to -0.7%. The bank's PPI inflation forecast is slightly higher than the general market expectation of -1%