The International Monetary Fund has trimmed its projection of China’s economic growth in 2026 by 0.1 percentage point to 4.5 per cent, cautioning that resilient exports are no longer sufficient to fully offset persistent weakness in domestic demand.
The revised projection sits at the lower end of Beijing’s annual growth target for this year, down from the previous forecast of 4.6 per cent in July, according to the organisation’s latest World Economic Outlook, released on Tuesday.
“Sluggishness in domestic consumption and weakening investment amid continued property sector strains were only partly offset by robust export performance,” the IMF said.
“Higher global oil prices, together with protracted uncertainty and structural headwinds, are expected to weigh on activity,” it said, adding that policy support by Beijing was expected to prevent a “sharper slowdown”.
The IMF projected oil prices would reach US$130 a barrel from the fourth quarter of 2026 to the first quarter of 2027, with limited scope for further inventory drawdown. Consequently, oil prices are projected to be 17 and 40 per cent higher on average in 2026 and 2027, respectively.
In response to the IMF’s revised projection, a spokesperson for China’s Ministry of Foreign Affairs said Tuesday that the country’s economic fundamentals remained solid and that Beijing was confident in its economic prospects.
The world’s second-largest economy had set its target for gross domestic product growth at “4.5 to 5 per cent” for 2026, a shift from the “around 5 per cent” goal set in recent years, as the economy grapples with weak domestic demand, a prolonged property downturn and rising external risks.
In the second quarter, China’s GDP grew by 4.3 per cent, missing market expectations and marking the lowest growth rate recorded since the end of 2022.
Exports have provided a key source of support for growth this year as domestic demand remains subdued, with China’s exports rising 25 per cent year on year to US$401.44 billion in August. Meanwhile, its cumulative trade surplus reached US$805.51 billion in the first eight months of 2026, up about 3 per cent from the same period last year, customs data showed. The latest trade figures are due on Wednesday.
The IMF said in its latest report that China’s trade surplus could widen further in 2026, following a record US$1.2 trillion surplus last year.
But strong exports have yet to translate into a broader recovery in domestic demand, as the increasingly capital-intensive nature of export growth had limited its benefits for employment and household income, according to a Morgan Stanley report on Monday, produced by a team led by Robin Xing, chief China economist at the investment bank.
Facing pressure to meet its annual growth rate target, Beijing has been ramping up policy support in recent weeks, including cutting interest rates for policy banks, offering mortgage interest subsidies for homebuyers and unlocking 550 billion yuan (US$82.2 billion) in local debt quotas to boost investment.
Morgan Stanley expected Beijing’s targeted easing measures to underpin a modest growth rebound in the fourth quarter. Domestic demand is likely to remain under pressure into 2027 amid local debt strains, a weak property market and subdued consumer confidence.
In an early October report, JP Morgan analysts noted that while weak consumption calls for further infrastructure spending and incremental stimulus, upcoming political milestones – including the fifth plenary session in late October and the run-up to the “two sessions” legislative meetings in March – could make local officials more risk-averse, thereby delaying project approvals.
The IMF said it now expected China’s economic growth to slow further to 4 per cent in 2027, down from 4.1 per cent in its July projection.
