Our economic outlook for China
April 22, 2026
A GDP growth surprise to start 2026
“China’s economy has started 2026 on stronger footing than expected, supported by robust exports and frontloaded fiscal support. While momentum is likely to moderate later in the year, the improved starting point leads us to revise upward our outlooks for growth, inflation, and monetary policy.”
Grant Feng,
Vanguard Senior Economist
Real GDP growth surprised to the upside in the first quarter, rising 5.0% year over year and materially exceeding expectations. Strength was driven by resilient exports, early fiscal deployment, and limited near‑term spillovers from the Middle East conflict. However, we expect momentum to ease in the second quarter as fiscal frontloading unwinds, global demand softens amid the potential for continued energy supply disruptions, and uncertainty persists around the durability of property market stabilization. On balance, we have revised our 2026 growth forecast up to 4.7%, from 4.5%.
The GDP growth reflected an easing of deflationary pressures alongside higher oil prices. We have increased our 2026 core inflation forecast to 1.2%, up from 1%. However, the oil‑driven cost shock is unlikely to generate sustained reflation without a more meaningful recovery in domestic demand. Price pressures remain concentrated upstream, with limited pass‑through to consumer prices amid still‑soft household spending.
The stronger growth momentum reduces the urgency for near‑term rate cuts, and the People’s Bank of China has signaled a preference for targeted and structural measures rather than broad‑based easing. We now expect only a 10‑basis‑point cut this year, which would bring the year‑end policy rate to 1.3%, modestly higher than our prior expectation. (A basis point is one-hundredth of a percentage point.)
Downside risks remain tied to external demand shocks, uneven property‑sector stabilization, and the durability of domestic demand recovery.
China economic forecasts
Notes: GDP growth is defined as the annual change in real (inflation-adjusted) GDP in the forecast year compared with the previous year. Unemployment rate is as of December 2026. Core inflation is the year-over-year change in the Consumer Price Index, excluding volatile food and energy prices, as of December 2026. Monetary policy is the People’s Bank of China’s seven-day reverse repo rate at year-end.
Source: Vanguard.
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