Economic Outlook for China
China’s economy is expected to experience a significant shift in the coming years. According to Goldman Sachs Research, the price inflation for Chinese exports in US dollar terms is predicted to turn positive in 2026, rising to 0.7% from -2.7% last year. This change is attributed to the moderation of deflation in producer prices and a slight appreciation of the Chinese yuan against the US dollar.
Labor Market Challenges
The Chinese labor market has been facing significant challenges over the past few years. The hiring rate has been at its lowest level in the past decade, excluding the Covid lockdowns. Additionally, the year-over-year growth of urban nominal wages slowed down to 3.8% in the third quarter of 2025. To address these issues, the government is expected to implement targeted policies to support income growth and alleviate labor market pressures in 2026.
Potential Government Policies
Some potential measures that the government may take include subsidizing services and offline businesses that are more labor-intensive, raising the minimum wage, reducing social security contributions for low-wage workers and flexible workers, and expanding unemployment insurance coverage and benefits. However, despite these efforts, the labor market is expected to remain weak due to structural headwinds, such as the high-tech manufacturing sector not being labor-intensive, and cyclical challenges like the property downturn.
Consumption and Household Spending
The weak labor market has also constrained the ability of households to spend, while a continued decline in house prices has negatively impacted consumer confidence. Although Goldman Sachs Research expects the year-over-year growth of household real consumption to moderate in 2026, the team forecasts government consumption to accelerate. The opposing forces are expected to result in a flat contribution to headline GDP growth from consumption.
The Property Market
China’s property sector is in its fifth year of decline, with most property activity indicators down 50%-80% from their 2020-2021 peaks. There is no sign of the property market reaching a bottom yet, with housing inventory remaining elevated and some large developers still facing challenging funding conditions. The effects of fewer new residential housing projects are still feeding through to property construction and investment, and there appears to be no "quick fix" for the property sector.
Conclusion
In conclusion, China’s economy is facing significant challenges, including a weak labor market, declining property sector, and constrained household spending. While the government is expected to implement policies to support income growth and alleviate labor market pressures, the road to recovery is expected to be long and challenging. The property market, in particular, is expected to remain weak, with no signs of stabilization yet. Overall, China’s economic outlook for 2026 is cautious, with a need for careful policy management to support growth and stability.
