1Q26_ Quarterly Outlook Report_Final_EN - Flipbook - Page 79
T H E P LUMB LI N E | A RETU RN TO F I RS T PRI N CI PL ES
China’s economy continues to grapple with the limits of its old growth model. The investmentand property-led engines that once delivered rapid expansion are now a drag, while the transition
toward a more domestically oriented, services-driven growth model where consumption,
technology, and the services sector play an increasingly important role has proven slower and
more uneven than policymakers would like. Weak household confidence, ongoing stress in the
property sector, and cautious policy support have kept growth subdued, leaving the economy
caught in an in-between phase with past drivers no longer sufficient and future ones not yet fully
formed.
We expect these headwinds to persist for the foreseeable future. Although the economy will likely
achieve the annual growth target of around 5% for 2025 – our estimate has 2025 growth pegged
at 4.8% – the going will get tougher in 2026 and 2027 with real GDP growth forecasted at 4.4%
and 4.1%, respectively.
Real GDP growth is expected to slow to a sub-5% pace for the first time since 1990, pandemic
excluded
16%
12%
8%
4%
0%
1998
2002
2006
China annual real GDP growth
2010
2014
2018
Scotiabank Economics' forecast
2022
2026
5% target
Source: National Bureau of Statistics, Bloomberg Finance LP, Scotiabank Economics, Scotia Wealth Management | Dashed line is Scotiabank’s forecast
Waning economic momentum was evident with the latest round of activity indicators for
November which showed a further downturn in domestic demand, deepening contraction in
investment and residential real estate, to go along with stable industrial production. Retail sales
grew 1.3% year-over-year in November, well below the median consensus estimate and the prior
month’s figure of 2.9%. Outside of Covid, this marks the slowest pace of retail sales growth in the
country’s history. Through the first eleven months of the year, sales are up 4% compared to the
same period a year ago, decelerating from a 4.3% reading up until October.
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