MorganStanleyRESEARCHASIAPACIFICINSIGHTNovember16,202509:17PMGMTMORGANSTANLEYASIALIMTTED2026 China Economics OutlookRobinXingSlow March to Lowflation+8522848-6511JennyZheng,CFAnahenogmorgaratarleycon+8523963-4015 Managed moderation in growth. Reflation is a slow burn,givenZhipengCa modest easing, gradual rebalancing, and calibrated antil+8522239-7820involution efforts. keeping 2026 nominal. GDP growth belowHarryZhaoconsensus,at4196.2027marks the turnfromdeflation to+8522239-7229lowflation.the2026Extel(exinstitutionalInvesto)KeyTakeawayshere1Growth downshifts,not derails. WeseerealGDPat4.8%in2026 and 4.65%in2027(vs.~5%in2025)Twenty-FourthAnnualAsia Pacific SummitI Nominal GDP remains muted as China only crawls out of deflation in 2027Reflationisaslowburm.Deflatorat-0.7%YoYin2026,+0.2% in2027. CPIstayslow as property drag, weak wage gains, and fading oneoffscapprice momentum I Policy stavys modestly expansionary and supply centic in 2026, tl ting graduallytowardpublicservicesin2027.MRMB edgesfrmeralongsideasofter dolar and steaderinflows with USDCNSreating705byend2026 and695 bvend2027rowth seen moderating amid lingering deflation: We expect a managed real GDPslowdown; nominal GD P wl ikelystay subdued at 4.19h in 2026 amid lingeringdeflation then rebound to 48% in2027. The mixrem ains unen. manufacturingand exports hold up, but property remains a drag.Being willlikelystick toitsaround 5%"growth target and 1% CPI goal for 2026,yet fiscal stimulus should-indimir20251n sale an composto, wthrealancig roceedng gadualylebt,net land2027, with slow narrowing of supply-demand imbalancesnce cautiously through market-drivenvysholdbeauly mesurd,rledting lingengpropertydrag and maxtrebalancinegintiatives Wethus expet slow reflation,with CPImovinginto lowfltion and PIturningpostivein2427ntric:Augmenteddeficitwillns.Acal tools but the offca defict mightadingshauld stay supply-centric,focusingon techsubsidies and small social-welfare top-ups. Central government supportfor housingis possible, but implementation challengesremain. We also expect 10-20 bpspolicyrate auts and 25-50 bps RRR redurctions next year to accommodate fisal policyRisks Our bul case assumes reduced US tarf and stronger globaldemandallowing forfaster economic rebalancting and relation from 2H26. In our bear cassrenewed trade tensions and a US recession could trigger more supplycentricunes,refertotheDisclosureSectionstimulus worsenine the suoolv demand imbalance and thus delationarv pressuretedattheend of this report
MorganStanley|weseaen,ASIAPACIFICINSIGHTManaged Moderation in Growth China's economv is set for a measured slowdow, with real GDP growth easing to4.8% in2026and4.69% h 2027(down from5% in 2025), Nominal GDP growth should remailmuted at ~4%Y next year, as China crawls out ofdeflation only in 2027.Kevforecasthiehliehtsataelances.Unevendemandmix:Manufacturing and exports are resilient,propertydrag2027.Household onsumpton: Real growthslows to-4-2%in 2026,constrained byasoft job market and fading boost from trade...
