Looking ahead to China’s economy in the second half, robust exports are expected to remain an important driver of economic growth, while domestic demand will generally remain stable. PPI inflation is expected to remain elevated, while CPI inflation is likely to stay moderate. As prices continue to recover, the full-year GDP deflator is expected to reach 1.1%. GDP growth is expected to dip before recovering in the second to fourth quarters, with expansion forecast at 4.5%, 4.6% and 4.8%, respectively. China Daily forecast China’s full-year real GDP growth at 4.7%, with nominal GDP growth at 5.8%. The USD/CNY exchange rate could hover around 6.7-6.8 this year, supported by China’s current account surplus and stronger corporate willingness to convert foreign-exchange receipts.
On the domestic macro front, imports and exports remain key drivers of growth. China’s foreign trade is expected to stay resilient in the second half of 2026, supported by multiple factors including the global AI investment cycle.
First, the continued capital spending cycle among overseas cloud providers is turning computing-power-related goods into an increasingly important driver of China’s trade growth. According to China Customs statistics, China’s integrated circuit exports rose 83.7% year-on-year in the first four months, making a notable contribution to overall trade growth. This support is expected to persist in the second half.
Second, elevated crude oil and natural gas prices caused by the Middle East conflict are likely to further boost global demand for new energy products. As a major producer of photovoltaic products, electric vehicles and lithium batteries, China continues to benefit from this trend.
Third, China’s relative cost advantages in manufacturing are set to widen. With oil and gas accounting for a lower share of its energy mix than in the European Union, Japan, South Korea and ASEAN economies, China is relatively less vulnerable to energy price shocks, which could further strengthen the cost competitiveness of its manufacturers.
Fourth, import growth is also expected to remain elevated in the second half, supported by stronger semiconductor supply-chain imports driven by rising AI computing demand, as well as higher import values for upstream commodities such as nonferrous metals, oil and gas amid price gains. Overall, China’s full-year export and import growth in 2026 is forecast at around 13.2% and 15.5%, respectively.
On the consumption front, retail sales growth, particularly goods consumption, is likely to remain subdued this year as subsidies are phased out, front-loaded demand fades, household income growth remains tepid and household balance-sheet repair falls short of expectations, weighing on consumers’ willingness to spend. Services consumption, however, is expected to emerge as a structural bright spot in household spending this year, underpinned by policy support.
The issuance of special treasury bonds for this year’s consumer goods trade-in program is slightly lower than the amount allocated last year. Subsidy funding in the first and second halves is expected to amount to 77% and 91% of year-earlier levels, respectively, creating a modest drag on retail sales growth. At the same time, property-sector weakness could continue to weigh on household balance-sheets and consumer confidence, while persistent pressure on income growth is likely to curb households’ willingness to spend. Taken together, retail sales – particularly goods consumption – are expected to remain weak in the second half, with full-year growth likely at around 2.5%. Compared with goods consumption, services are more experience-driven and tend to benefit from continued upgrading and repeat demand. Services are likely to become an increasingly important driver of overall consumption growth.
On the investment front, fixed-asset investment (FAI) growth is expected to stay slightly positive in 2026, as tighter “anti-involution” policies limit inefficient capacity additions and property investment continues to drag. Structurally, economists expect a steady growth in infrastructure investment, weak manufacturing investment and a continued but narrowing drag from real estate development. For infrastructure investment, the combination of limited fiscal resources for the remainder of the year and a shrinking pool of project reserves suggests that the second quarter could see a near-term trough in growth. Infrastructure investment growth is expected to recover sequentially in the second half. It is expected that the strong momentum in AI-related sectors and the overall improvement in corporate profits will support a moderate increase in manufacturing investment growth.
However, as anti-involution policies continue to be rolled out, manufacturing investment is likely to post only modest positive growth for the full year. The decline in real estate development is expected to narrow further. On the price front, “imported inflation” is expected to keep China’s PPI elevated, the China Daily reports.
