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Although China's economic growth will remain steady, it will likely slow to about 4.6 per cent in 2026 amid weak domestic demand and broader cross-sector pressures as per Fitch Ratings.
Noting China's latest retail sales and investment data, Fitch views China's inflation and property sector as key credit risks, despite it's 'A' rating. Retail sales fell 0.6 per cent in May 2026, while fixed-asset investment dropped 4.1 per cent in the first five months, as reported by Fitch Ratings. "May 2026's retail sales contracted 0.6% yoy - the first decline since late 2022 - while fixed-asset investment declined by 4.1% in the first five months," it said. Fitch further noted, while China's headline inflation has turned positive, price gains remain concentrated in export-oriented and selected technology-related sectors, which reflects an uneven economic recovery. "Economic imbalances between the external- and domestic-facing sectors are becoming more pronounced," it said. Additionally, "manufacturing activity remains dependent on external demand, and deflationary pressures could re-emerge in 2H26 if domestic demand does not broaden," said Fitch. Adding to this, the report noted China's property sector is witnessing dual-speed recovery. As per Fitch, the country's national residential sales value dropped 14.1 per cent down YoY, and new housing starts fell 22.6 per cent. Residential sales fell 14.1% year-on-year, while new housing starts dropped 22.6%. Demand is holding up better in top-tier cities, but the broader housing market continues to struggle with excess inventory, weak demand, and cautious buyer sentiment. According to the Fitch report, China's export and infrastructure sectors are helping support growth, even as domestic demand remains weak. Meanwhile, "declining land concession revenue and a low remaining debt substitution quota may constrain public-sector investment growth in 2H, unless additional policy measures are introduced. The link between fixed-asset investment and GDP growth is not automatic, while a broader recovery in domestic demand will be needed to sustain economic momentum," the report said. Amid the ongoing geopolitical risks, specifically around energy markets and broader trade tensions, Fitch Ratings noted. "China's diversified energy supply and strategic reserves provide some buffer, while persistent uncertainty could weigh on external demand and input costs." "Fitch Ratings expects China's GDP growth to stay resilient but to moderate to around 4.6% in 2026," it said. (ANI)
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