China: A two-speed economy

Danske Research Team Danske Bank A/S

The latest data in China has changed little to the overall picture of a two-speed economy with domestic demand looking weak while exports and tech continue to power ahead.

Growth is set to be close to the government's 5% target again this year but finishes the year on a weak note. We look for new stimulus to lift growth in the first half of 2026 and that the target will again be set around 5%.

We stick to our growth forecast of 4.9% in 2025 followed by 4.8% in 2026. In 2027 we project 4.7% growth.

More important will be the composition of growth and we expect to see more of the same with domestic demand still not strong enough to match supply keeping overcapacity and deflationary pressures as lingering problems.

In the new Five-Year Plan, China doubles down on tech and puts more weight on boosting consumer demand. It will require new and more forceful measures to stabilize housing, though, which may take some time still.

US-China tensions have eased again but we expect a continued bumpy road ahead. Tensions with EU have intensified this year and we see little respite in 2026.

The question of reunification with Taiwan still lingers but we see limited risk of military conflict during Trump's Presidency.

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Danske Research Team

Danske Bank A/S

Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.

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