Nomura expects China's real GDP growth to slow markedly to 4.1% in Q2

Overview

This report is Nomura's preview of China's macro data for June 2026 and Q2 2026. It argues that the growth rebound in Q1 is unlikely to be sustained, that major activity indicators already weakened significantly from April to May, and that no meaningful recovery is expected in June. On the supply side, slower industrial and services output will weigh on real GDP; on the demand side, retail sales, fixed asset investment, and real estate remain weak, while exports remain strong but their real contribution is limited due to rising chip and electronics prices.

Core views

Nomura maintains its forecast of 4.1% year-on-year real GDP growth in Q2, below 5.0% in Q1. Nominal GDP growth may remain relatively stable because the GDP deflator turns positive. The report emphasizes that the rebound in inflation does not come from a genuine recovery in domestic demand, but mainly from external price shocks; against the backdrop of a sharp decline in investment and policy emphasis on stabilizing investment, Beijing may accelerate bond issuance and increase fiscal spending in the coming months.

Analysis framework

The report adopts a top-down macro preview framework, combining data already released for April-May, June high-frequency indicators, and component forecasts to assess Q2 growth from the perspectives of supply, demand, prices, trade, consumption, investment, real estate, and financial conditions. Since China's GDP accounting is mainly based on the production approach, the report believes official GDP readings may align more closely with supply-side signals rather than the sharper slowdown indicated by the demand side.

Methodology notes

• Macro Growth AccountingSupply-side GDP Assessment

  Production approach perspective

  By estimating the drag on real GDP from industrial and services output growth, the report believes both industrial and services growth in Q2 may slow to around 4.5%, creating drags of about 0.5 percentage points and 0.4 percentage points, respectively, on GDP growth.

• Macro Growth AccountingDemand-side Cross-check

  Three observations: consumption, investment, and exports

  Total demand is assessed through retail sales, fixed asset investment, and export growth. The report believes the demand side points to a more severe slowdown, and that part of the strong nominal export growth comes from rising chip and electronics prices, with a limited real growth contribution.

• Inflation and Nominal GrowthGDP Deflator Assessment

  CPI, PPI, and GDP deflator

  Using the rebound in CPI and PPI, the report infers that the Q2 GDP deflator may turn positive to around 1.0%, but stresses that this is mainly driven by external factors such as oil, chips, and commodities rather than a recovery in domestic demand.

• High-frequency Indicator TrackingIndustry Operating Rates and High-frequency Trade Data

  Oil and chemicals, building materials, steel, port throughput, PMI

  The report tracks high-frequency data such as refinery runs, PTA, polyester filament, asphalt, cement, steel, coal usage, port throughput, and overseas manufacturing PMIs to calibrate forecasts for industrial production, investment, and foreign trade.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China Macroeconomy

  Direct coverage

  Strengths

  Nominal export growth remains high, and AI-related chip and electronics demand supports part of foreign trade and price indicators.

  Weaknesses

  Domestic demand is weak, with sluggish retail sales, fixed asset investment, and real estate investment, and real GDP growth is expected to be clearly below Q1.

  Comparison

  Q2 real GDP is forecast at 4.1%, below 5.0% in Q1; demand-side indicators show a more pronounced slowdown than supply-side indicators.

  Risks

  If policy support proves insufficient or real estate continues to decline, downside growth pressure may exceed the report's forecast.

• China Rates and Credit Market

  Related to macro and policy expectations

  Strengths

  If government bond issuance accelerates and fiscal spending expands, it may support expectations for infrastructure and credit expansion.

  Weaknesses

  Growth in social financing, loan balances, and M2 is expected to continue slowing, while short-end liquidity tightened somewhat in June.

  Comparison

  Growth in total social financing outstanding is expected at 7.4% in June, below 7.7% in May; both new social financing and new loans are below the same period last year.

  Risks

  The pace of bond supply, the speed of fiscal spending implementation, and PBoC liquidity operations may alter pricing along the rates curve.

• China Consumption and Auto Chain

  Affected by the retail sales forecast

  Strengths

  Catering may see slight year-on-year improvement due to a low base last year.

  Weaknesses

  Auto sales are the main drag on retail, with passenger car retail sales still expected to show negative growth; the fading impact of the consumer trade-in program, higher EV purchase tax, and weak consumer confidence suppress demand.

  Comparison

  Retail sales are expected at 0.9% in June, a slight improvement from -0.6% in May but still weak; auto sales are expected at -16.0%.

  Risks

  If household income expectations and asset prices remain under pressure, consumption recovery may be weaker than expected.

• Real Estate and Property Chain

  Affected by real estate investment and housing price divergence

  Strengths

  Second-hand home prices in top-tier cities have posted consecutive modest increases, with cities such as Shanghai and Shenzhen showing marginal signs of stabilization.

  Weaknesses

  Housing prices nationwide and in lower-tier cities remain weak, and real estate investment is expected to continue contracting sharply.

  Comparison

  Monthly real estate investment is expected at -25.0% in June, deteriorating further from -24.3% in May.

  Risks

  A widening K-shaped divergence, weaker new home sales, and falling home prices in lower-tier cities may weigh on investment, credit, and consumption.

• Commodities and Industrial Chain

  Affects PPI, imports, and industrial production

  Strengths

  Prices of non-ferrous metals, AI-related products, and new energy raw materials continue to support PPI.

  Weaknesses

  Falling oil prices will weaken PPI support for oil-related industries, while operating rates in oil and chemicals and some upstream industries remain disrupted.

  Comparison

  PPI is expected at 4.0% in June, above 3.9% in May; the year-on-year increase in Brent oil prices fell from 68.3% in May to 21.8% in June.

  Risks

  Volatility in the Middle East situation, oil prices, chip prices, and new energy material prices may significantly alter inflation and trade data.

Key data

• Forecast for Q2 real GDP growth4.1% y-o-yBelow 5.0% in Q1, this is the report's core judgment.
• Assessment of Q2 nominal GDP growthLikely relatively stableSupported by the GDP deflator turning positive; nominal GDP growth in Q1 was 4.9%.
• Forecast for Q2 GDP deflatorAbout 1.0% y-o-yTurning positive from -0.1% in Q1, ending the trend of being negative in 13 of the past 14 quarters.
• Forecast for official manufacturing PMI in June49.8It was 50.0 in May, reflecting weak domestic demand and upstream supply chain disruptions.
• Forecast for official non-manufacturing PMI in June49.8It was 50.1 in May, with relatively weak tourism spending during the Dragon Boat Festival holiday.
• Forecast for RatingDog manufacturing PMI in June51.5It was 51.8 in May, still supported by exports driven by the AI cycle.
• Forecast for industrial value-added in June4.5% y-o-yFlat from May, with supply disruptions from the Middle East conflict still ongoing.
• Forecast for export growth in June16.2% y-o-yIt was 19.4% in May; the report expects export momentum to remain strong in the short term.
• Forecast for import growth in June26.2% y-o-yIt was 27.4% in May, affected by a high base, oil and gas prices, and chip prices.
• Forecast for trade surplus in JuneUSD111.3bnIt was USD105.4bn in May.
• Forecast for CPI in June1.2% y-o-yUnchanged from May, with the drag from food easing but support from energy and core prices weakening.
• Forecast for PPI in June4.0% y-o-yIt was 3.9% in May, supported by a low base and prices of non-ferrous metals, chips, and new energy materials.
• Forecast for retail sales in June0.9% y-o-yIt was -0.6% in May, still affected by the fading impact of the consumer trade-in program, weak consumer confidence, and imported inflation.
• Forecast for monthly fixed asset investment in June-8.4% y-o-yIt was -10.7% in May, with only limited improvement.
• Forecast for cumulative fixed asset investment in H1-5.3% y-o-yShowing that investment has not yet seen a meaningful recovery.
• Forecast for monthly real estate investment in June-25.0% y-o-yIt was -24.3% in May, with the deep contraction continuing.
• Forecast for new social financing in JuneRMB3,477bnBelow RMB4,225bn in the same period last year.
• Forecast for new RMB loans in JuneRMB1,647bnBelow RMB2,240bn in the same period last year.
• Forecast for total social financing outstanding growth in June7.4% y-o-yIt was 7.7% in May and is expected to continue declining.
• Forecast for M2 growth in June8.4% y-o-yIt was 8.6% in May.

Impact & implications

The report carries a cautious implication for China's macro growth: real economic momentum is weaker than nominal data suggest, while strong export growth and rising inflation are distorted by price factors, and domestic demand and investment remain the main drags. If investment and social financing continue to weaken, policymakers are more likely to offset downward growth pressure through faster government bond issuance, higher fiscal spending, and measures to stabilize investment. For markets, slowing growth, expectations of policy support, rising PPI, and structural price shocks will simultaneously affect the pricing of rates, credit, cyclicals, consumption, and real estate-linked assets.

Risks

• Strong nominal export growth may be exaggerated by rising chip and electronics prices, making the real export boost weaker than headline data suggest.
• If the decline in real estate investment and housing prices widens further, it may continue to drag on investment, credit, and household consumption.
• If government bond issuance and fiscal spending fail to accelerate, policies to stabilize investment may prove insufficient.
• The rebound in inflation is mainly driven by external price factors; if oil, chip, or metal prices reverse, support for nominal growth may weaken.
• The Middle East conflict and supply chain disruptions may continue to affect oil and chemicals, import prices, and industrial production.

What to watch

• Whether the official manufacturing PMI and non-manufacturing PMI for June both fall into contraction territory.
• Official data for June and Q2 GDP, industrial production, retail sales, fixed asset investment, and real estate investment.
• The pace of government bond issuance, accelerated fiscal spending, and implementation of investment-stabilization policies.
• The PBoC monetary policy committee meeting, the July Politburo meeting, and subsequent monetary policy reports.
• Changes in social financing, RMB loans, M2, and short-end funding rates.
• The impact of oil, chips, non-ferrous metals, and new energy raw material prices on CPI, PPI, and import values.
• Whether the K-shaped divergence in real estate prices and transaction volumes between top-tier and lower-tier cities widens.