China: Navigating through new headwinds
The two-speed economy is still pronounced with consumer demand weak while exports and tech-related investments are robust.
After a strong start of 5% GDP growth in Q1, new headwinds arrived with the increase in energy costs and higher uncertainty over the export outlook.
Still, we keep the 4.8% growth forecast for 2026 as we look for policy makers to calibrate stimulus to meet the 4½-5% growth target. Risks are skewed to the downside, though. In 2027 we continue to look for 4.7% growth.
The housing crisis continued into 2026 but has shown tentative signs of bottoming out this year. We expect 2026 to be the low point but forecast only a gradual recovery in 2027.
China is moving from a global deflationary force to an inflationary force as producer prices are now rising briskly.
China continues to make headways in technology, and its' companies are increasingly going global. Competition and trade tensions with US and EU are set to be with us for years to come.
US-China relations remain stable following the Xi-Trump meeting in May. The trade war is still on stand by and Chinese supply lines of rare earth minerals continue to be open. The rivalry and competition are set to continue, though, and future supply risks remain a feature of the new world order.
Author
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.
