Goldman Sachs Research expects price inflation for Chinese exports in US dollar terms to turn positive in 2026, rising to 0.7% from -2.7% last year. This reflects deflation in producer prices moderating gradually and the Chinese yuan appreciating slightly against the US dollar.
Can policymakers increase Chinese consumption and employment?
The Chinese labor market has been weak over the past few years. A weighted average of employment sub-indexes of various purchasing managers’ indexes indicates that hiring has been at its most depressed level over the past decade (outside of Covid lockdowns), and Goldman Sachs Research’s wage tracker suggests that year-over-year growth of urban nominal wages slowed to only 3.8% in the third quarter of 2025.
The team anticipates targeted government policies to help alleviate labor market pressures and support income growth in 2026. Potential measures include subsidizing services and offline businesses that are more labor-intensive, raising the minimum wage, reducing social security contributions for low-wage workers and flexible workers, and expanding unemployment insurance coverage and benefits.
But China’s labor market weakness will still be difficult to tackle due to structural headwinds (high-tech manufacturing is not labor-intensive, and new technologies can displace workers) and cyclical challenges (like the property downturn), Shan writes.
A weak labor market has also constrained the ability of households to spend, while a continued decline in house prices has negatively impacted consumer confidence.
Although Goldman Sachs Research expects the year-over-year growth of household real consumption to moderate in 2026, the team forecasts government consumption will accelerate. The opposing forces are expected to result in a flat contribution to headline GDP growth from consumption.
Has China’s property market stabilized?
China’s property sector is in its fifth year of decline. Most property activity indicators—such as new home starts, sales, and property investment—are down 50%-80% from their 2020-2021 peaks.
There is no sign of the property market reaching a bottom yet. Housing inventory remains elevated, and some large developers still face challenging funding conditions. With the effects of fewer new residential housing projects still feeding through to property construction and investment, Shan writes, there appears to be no “quick fix” for the property sector.
