Goldman Sachs withdraws its 2026 China policy rate cut expectation
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Goldman Sachs withdraws its 2026 China policy rate cut expectation
The report focuses on three macro signals in China: March PMI was distorted by the Lunar New Year timing but manufacturing improved, the PBOC's willingness to cut rates declined, and the current drag from rising energy prices on economic activity is limited.
- The official March PMI rebounded while the unofficial RatingDog PMI weakened; the report believes the Lunar New Year timing and residual seasonality distorted both series.
- Q1 PMIs overall show manufacturing activity strengthening after the start of 2026, but services are uneven, with tourism strong and real estate services weak.
- The PBOC's Q1 Monetary Policy Committee statement was broadly unchanged in tone, but it again emphasized lowering intermediary financing costs, suggesting greater caution about cutting policy rates.
- Because January-February data were better than expected, PPI inflation is expected to turn positive in March, and financial risks are under control, Goldman Sachs no longer expects a 10bp policy rate cut in 2026.
- Although domestic fuel prices have risen sharply, most high-frequency indicators still point to stable economic activity; the report counts only a 0.2 percentage point drag on China's real GDP growth from the Middle East conflict.
Report interpretation
Overview
This Goldman Sachs China macro research report summarizes three recent signals: first, the official and unofficial March PMIs moved in opposite directions, but the overall picture still supports an improvement in manufacturing activity and uneven services; second, the PBOC's Q1 Monetary Policy Committee statement shows a lower probability of a policy rate cut, leading the research team to withdraw its forecast for a 10bp cut in 2026; third, rising energy prices have not yet materially hit high-frequency economic activity, and policy measures such as coal supply, green power, and grid investment are buffering external energy shocks.
Core views
The core view is that policy easing in China remains cautious, and unless the growth outlook deteriorates significantly, the PBOC is unlikely to lower policy rates this year. The price subcomponent of the manufacturing PMI rose to the highest level since early 2022, and with PPI possibly turning positive, the need for rate cuts has declined. At the same time, the impact of the energy shock on China's growth is currently manageable; the report estimates the Middle East conflict will drag on this year's real GDP growth by 0.2 percentage points.
Analysis framework
The report uses a macro data cross-check approach, combining the official NBS PMI, the unofficial RatingDog PMI, the PBOC Monetary Policy Committee statement, January-February economic activity data, PPI trends, and high-frequency economic tracking indicators to assess growth, inflation, the policy reaction function, and the impact of the energy shock.
Methodology notes
Compare the official NBS PMI and the unofficial RatingDog PMI, while adjusting for Lunar New Year timing and seasonality.
The report believes the opposite moves in the two PMI series in February and March were affected by the timing of the Lunar New Year and residual seasonality, so it focuses more on the overall Q1 signal: stronger manufacturing and mixed services.
Assess the probability of a rate cut using the wording of the PBOC's Q1 MPC statement, growth data, PPI, and financial risk conditions.
The statement again emphasized lowering intermediary financing costs. Combined with better-than-expected January-February data and improving inflation, the report judges that the PBOC is more cautious about directly cutting policy rates.
Use high-frequency activity data and policy supply responses to assess the drag from higher energy prices on GDP.
Although domestic fuel prices have risen sharply, most high-frequency data remain stable; policy support for coal supply, green power, and grid construction leads the report to count only a 0.2 percentage point drag on GDP.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- China policy ratedirectly related
- Strengths
- Better-than-expected growth data, a possible positive PPI reading, and manageable financial risks reduce the need for rate cuts.
- Weaknesses
- If the growth outlook deteriorates significantly, the PBOC could reconsider rate cuts.
- Comparison
- Compared with the previous forecast for a 10bp cut, the report now expects no rate cut in 2026.
- Risks
- External shocks, property-sector weakness, or softer domestic demand could change the policy path.
- China manufacturingpositively related
- Strengths
- Q1 PMIs show manufacturing activity strengthening after the start of 2026, with the price subcomponent rising to a high since early 2022.
- Weaknesses
- The official and unofficial March PMIs diverged, and the short-term readings were affected by Lunar New Year timing and seasonality.
- Comparison
- Manufacturing is performing better than the weak areas of services, especially real estate services.
- Risks
- External demand, tariffs, energy costs, and margin pressure may still affect momentum.
- China services and real estate servicesdivergent
- Strengths
- Some service activities, such as tourism, are relatively strong.
- Weaknesses
- Real estate services remain weak, showing that the services recovery is uneven.
- Comparison
- Services overall are weaker than the improvement seen in manufacturing.
- Risks
- Weakness along the property chain could continue to drag on services and household confidence.
- China energy and upstream sectorsrelated to inflation and growth shocks
- Strengths
- Policy emphasizes expanding green power supply, advancing new grid construction, and having the willingness and ability to increase coal output.
- Weaknesses
- Domestic fuel prices have already risen sharply, and if the increase persists it could raise costs.
- Comparison
- The report believes the inflationary impact of the oil price shock will likely remain confined to upstream sectors.
- Risks
- An escalation in the Middle East conflict or further energy price increases could deepen the drag on GDP.
Key data
- Policy rate forecast changeWithdraws the forecast for a 10bp cut in 2026It previously expected a 10bp cut this year; this report says the PBOC would cut only if the growth outlook deteriorates significantly.
- Last 10bp rate cutMay 2025The report says the bilateral tariff rate between China and the U.S. exceeded 100% at that time.
- Energy shock impact on GDP-0.2 percentage pointsGoldman Sachs' estimated drag on China's real GDP growth this year from the Middle East conflict.
- Manufacturing PMI price subcomponentHighest level since early 2022All price subcomponents of the NBS manufacturing PMI rose significantly.
- Report date2026-04-05 11:11PM HKTThe file date is 2026-04-06, and the body shows the publication time as April 5, 2026.
Impact & implications
The implication for assets and macro expectations is that the conviction behind China rate-cut trades has weakened, and policy easing is more likely to show up through lower financing costs, fiscal support, and industrial investment rather than an immediate reduction in policy rates. Improvements in manufacturing and upstream prices may ease deflation pressure, but services and real estate services remain weak links in the domestic demand recovery. If energy prices keep rising, upstream inflation may pick up and squeeze margins in some industries, but the policy supply response lowers the direct impact on full-year growth.
Risks
- The timing of the Lunar New Year and residual seasonality may distort PMI readings and lead to short-term judgment errors.
- If the growth outlook deteriorates significantly, the PBOC's policy path could shift back toward rate cuts.
- Persistent weakness in real estate services may continue to weigh on services and domestic demand recovery.
- Further increases in energy prices could create greater pressure on costs, inflation, and real GDP.
- External trade and geopolitical shocks may change China's macro policy reaction function.
What to watch
- Whether subsequent NBS and RatingDog PMIs converge again, and whether the manufacturing price subcomponent can stay elevated.
- Whether March PPI turns positive as the report expects, and whether the improvement in inflation continues.
- Changes in wording in the PBOC's future policy statements regarding policy rates, financing costs, and financial risks.
- Whether the improvement in January-February economic data continues into Q2.
- The effect of energy prices, coal supply, green power, and grid investment progress on high-frequency activity data.
- Whether the divergence between real estate services and tourism within services narrows.