The International Monetary Fund (IMF) has slightly lowered its forecast for China’s economic growth in 2026, citing persistent weaknesses in domestic demand that are only partially offset by strong export performance. In its latest World Economic Outlook released on Wednesday, the IMF revised China’s growth projection down by 0.1 percentage point to 4.5 percent, placing it at the lower boundary of Beijing’s official annual target range.

The report highlighted ongoing challenges such as sluggish consumer spending, declining investment, and continued difficulties in the property sector. These domestic issues are compounded by external factors, including rising global oil prices and broader structural uncertainties, which the IMF said are likely to weigh on overall economic activity. The fund projected that oil prices could reach $130 per barrel between late 2026 and early 2027, driving average prices up by 17 percent in 2026 and 40 percent in 2027, limiting the potential for inventory reductions to ease the price pressure.

Despite these headwinds, the IMF emphasized that policy support from Beijing is expected to prevent a more severe economic slowdown. In response to the revised outlook, a spokesman for China’s Ministry of Foreign Affairs reiterated confidence in the country’s economic fundamentals and future prospects.

China’s economy, the world’s second largest, has faced ongoing difficulty in reviving domestic demand amid a prolonged property market downturn and rising external uncertainties. The government has set a 2026 GDP growth target of 4.5 to 5 percent, a reduced range compared with previous years. In the second quarter, the economy expanded by 4.3 percent, marking the slowest pace since late 2022 and falling short of market expectations.

Exports continue to serve as a critical growth driver, with outbound shipments rising 25 percent year-on-year to $401.44 billion in August. Customs data also showed China’s cumulative trade surplus reached $805.51 billion in the first eight months of the year, up about 3 percent from the same period in 2025. The IMF’s report noted the trade surplus could further widen in 2026 following a record $1.2 trillion surplus last year.

However, experts warn that strong export growth has not translated into broader domestic recovery. According to a report by Morgan Stanley led by chief China economist Robin Xing, the increasingly capital-intensive nature of exports has limited benefits for employment and household incomes. This dynamic constrains consumer spending and dampens broader economic momentum.

In response to growth pressures, Beijing has stepped up targeted policy measures in recent weeks, including reducing interest rates for policy banks, offering mortgage interest subsidies, and approving 550 billion yuan in local government debt for investment projects. Morgan Stanley analysts expect these easing efforts to support a modest rebound in the fourth quarter. Nevertheless, they predict continued weakness in domestic demand into 2027, sustained by lingering local debt burdens, a sluggish property market, and cautious consumer sentiment.

JPMorgan analysts have also pointed to potential delays in infrastructure spending and stimulus initiatives as local officials may adopt a more risk-averse stance ahead of key political events later this year and early next, including the fifth plenary session in late October and the annual legislative sessions in March.

Looking ahead, the IMF revised its 2027 growth forecast for China down to 4 percent from a previous 4.1 percent, reflecting concerns that domestic challenges and external uncertainties will continue to weigh on the economy.