UBS: April Data Signals Re-Inflation in China’s Economy, Strengthening Domestic Demand Supports Growth

Overview

This research report, published by UBS, analyzes China’s macroeconomic data for April 2026. Its core view is that China’s economic growth remains broadly stable, with relatively strong trade performance. Notably, although export growth is robust, import growth is even stronger—suggesting a marked improvement in domestic demand against a backdrop of stable headline growth. Inflation dynamics are divergent: the PPI (Producer Price Index) is poised for a significant rebound driven by energy prices, while the CPI (Consumer Price Index) remains subdued due to weak food prices. This low-inflation environment affords the central bank additional policy space to ease liquidity and bolster monetary and credit growth.

Core views

Demand side: Clear signals of domestic demand recovery. UBS observes that while export data are strong, import growth actually outpaces export growth. Against a background of stable headline (nominal) growth, this 'scissors-gap' strongly implies strengthening momentum in domestic demand. From a GDP accounting perspective, the contribution of fixed-asset investment shows meaningful acceleration, and consumption data also reflect modest acceleration to reasonable levels. Supply and pricing: PPI rebound and deteriorating terms of trade. The report argues that PMI activity indicators (e.g., new export orders index) have recently diminished in reliability—for instance, the index remained flat despite a sharp Q1 export surge. By contrast, PMI price indices are deemed more reliable. Driven by higher energy prices, the PPI is expected to rebound significantly. However, the divergence between input and output price indices reveals worsening terms of trade for China—the world’s largest energy importer—as rising input costs erode purchasing power and corporate profits. Policy and liquidity: Room for easing opens up. With food prices remaining weak, CPI is likely to stay low. UBS believes this low-CPI environment leaves room for the People’s Bank of China (PBOC) to cut interbank liquidity rates. The institution expects the central bank’s intent is to support monetary and credit growth—both of which were the only major indicators significantly below expectations in Q1. Data quality risk: Stricter administrative scrutiny. The report highlights that upcoming data releases may be affected by increasingly rigorous administrative reviews targeting data falsification. Several cities and officials have already been penalized for misreporting data—including export data, traditionally considered among the most reliable—potentially introducing noise into future official statistics.

Analysis framework

UBS adopts a 'top-line decomposition + cross-validation' analytical approach in this report. First, it isolates the impact of external demand by comparing the differential growth rates of imports and exports to infer implicit changes in domestic demand. Second, rather than relying solely on PMI activity indices to gauge economic vitality, it cross-validates findings using investment and consumption components from GDP accounting—and emphasizes the superior reliability of PMI price indices in reflecting upstream cost pressures. Finally, it links inflation trends (CPI/PPI) to monetary policy space (liquidity rates), analyzing potential operational pathways for policymakers responding to weak credit conditions.

Methodology notes

• Industry/sector analysis frameworkVolume-price decomposition

  Assessing the sources of economic drivers by decomposing volume-price relationships in trade flows and distinguishing between price and activity indices in the PMI.

  Rather than focusing solely on aggregate growth, the report compares relative strength between imports and exports and distinguishes between 'activity' and 'price' components in the PMI to more precisely identify whether external or domestic demand—and whether quantity expansion or price pressure—is driving current economic shifts.

• Macroeconomic framework

  Terms-of-trade analysis

  The report observes the divergence between input prices (e.g., energy) and output prices to highlight how, as a major energy importer, rising input prices worsen China’s terms of trade—i.e., requiring more exports to purchase the same volume of imported energy—thereby compressing real purchasing power and corporate profitability.

Key data

• April CPI YoY forecast1.1%Driven by low food prices, remains subdued
• April PPI YoY forecast1.4%Driven by high energy prices, notable rebound
• April M2 YoY forecast8.6%Money supply maintains steady growth
• April export YoY forecast12.0%Robust export growth
• April import YoY forecast20.0%Import growth exceeds export growth, signaling strengthening domestic demand

Impact & implications

The report views import growth surpassing exports as a positive signal of domestic demand recovery, helping alleviate market concerns about excessive reliance on external demand. The PPI rebound should improve industrial enterprise profit margins, though worsening terms of trade may weigh on overall real income. For policy, the low-CPI environment affords the central bank greater near-term flexibility in monetary operations; further reductions in liquidity costs to support credit expansion are anticipated to offset Q1’s credit shortfall.

Risks

• Stricter administrative scrutiny following data falsification incidents may cause volatility or revisions in subsequent macroeconomic data
• Sustained energy price increases could further deteriorate terms of trade and squeeze downstream profit margins
• The sustainability of the domestic demand recovery remains uncertain—currently reflected only in a short-term jump in import growth

What to watch

• Actual implementation and outcomes of monetary and credit growth over the coming months
• Specific measures adopted by authorities to enhance data quality and their impact on official statistics
• Pass-through effects from PPI to CPI and evolving trends in core inflation