China macroeconomic activity and GDP outlook Report Interpretation

Overview

This macro update assesses China’s August activity data. Goldman Sachs sees an ongoing imbalance between resilient supply-side production and weak domestic demand, prompting lower near-term GDP forecasts despite signs of stronger exports and possible later policy support.

Core views

Goldman Sachs characterizes China’s August activity data as mixed: industrial production improved, but investment and consumption remained soft. Industrial production rose 5.2% year-on-year, up from 4.5% in July and above Goldman Sachs’s 4.6% forecast and Bloomberg consensus of 4.8%. The firm estimates seasonally adjusted production grew 0.7% month-on-month in August after a 0.3% decline in July. Faster output in electric machinery, chemicals and pharmaceuticals drove the acceleration, while computer and other equipment slowed. Industrial robot output growth increased to 34.6% year-on-year and metal-cutting-machine output growth to 14.1%, but smartphone output remained down 22.3%; crude steel, cement, power generation and automobile output were also subdued or weakened. Chemical-fiber and sulfuric-acid output declined further amid lingering Middle East conflict-related supply-chain disruptions. Investment remained the central weak point. Fixed-asset investment fell 10.8% year-on-year on Goldman Sachs’s single-month estimate, less negative than July’s 12.8% decline largely because of favorable base effects. Year-to-date fixed-asset investment growth worsened to -7.2% in August from -6.7% in July. Infrastructure investment declined 16.8%, manufacturing investment fell 6.5%, and property investment remained deeply negative at -25.4%, although the latter improved from -27.5% in July. Other services- and agriculture-related investment rebounded to 0.5%. The firm notes that National Bureau of Statistics corrections to previously over-reported data may amplify recent volatility, but considers the reported investment weakness broadly consistent with steel and cement output. Consumer demand also slowed. Nominal retail sales grew only 0.4% year-on-year, versus 0.6% in July and 0.8% consensus expectations; Goldman Sachs estimates seasonally adjusted sales value was nearly flat month-on-month. Online goods sales growth slowed to 2.0%, offline goods sales remained negative at -0.3%, and restaurant-sales growth eased to 1.1%. Automobile sales contracted 18.5%, while low base effects supported home-appliance sales growth of 2.3% and electronic-equipment growth of 27.3%. Gasoline and other oil-product sales fell 7.0%; adjusting for prices, Goldman Sachs estimates volumes declined 8% amid a 10% year-on-year increase in domestic retail fuel prices. New NBS data showed January-August goods-and-services retail sales up 2.5%, with services sales growth of 4.9% outpacing goods growth of 1.0%. Services and property data reinforce the weak-demand assessment. The real Services Industry Output Index, which Goldman Sachs notes closely tracks tertiary GDP and relates to a sector accounting for 58% of China’s economy in 2025, slowed to 4.1% year-on-year from 4.3%. Property activity remained sluggish despite green shoots in some large cities: floor space sold fell 14.7% year-on-year and sales value fell 12.1%; new home starts, completions and construction area declined 31.0%, 28.4% and 12.8%, respectively. Nationwide home prices remained under downward pressure, although some large cities showed early price-stabilization signs. Labor conditions softened as the nationwide and 31-city unemployment rates both rose to 5.3% from 5.2%. Goldman Sachs estimates the seasonally adjusted nationwide rate rose to 5.2% from 5.1%, while the 31-city measure was broadly unchanged at 5.1%; the migrant-worker rate with local Hukou rose to 5.2% from 5.0%. The 16-24 unemployment rate rebounded to 17.9% in July from 14.9% in June. The report cautions that the revised youth-unemployment definition may understate pressure on younger workers, particularly given weak domestic demand and possible AI-related pressure on entry-level white-collar jobs. On the forecast outlook, Goldman Sachs expects Q3 real GDP growth to remain below 4.5% year-on-year after 4.3% in Q2. Although activity often rebounds in quarter-end months and government bond issuance has recently accelerated, weaker July data, mixed August data and early-September trackers lead the firm to cut Q3 sequential growth to 4.0% quarter-on-quarter annualized from 5.0%. It lowers both Q3 and Q4 year-on-year forecasts by 0.2 percentage point to 4.4%, reduces its 2026 forecast by 0.1 percentage point to 4.5%, and reduces its 2027 forecast by 0.1 percentage point to 4.6%. Risks cited include renewed Middle East conflict, a near-term drag from property policies accelerating the shift toward completed-home sales, and delayed policy easing. Signals from the State Council, MOF and NDRC have nevertheless raised expectations of additional stimulus should growth weaken further and the 4.5%-5.0% full-year target come under pressure.

Analysis framework

Goldman Sachs assesses monthly production, investment, retail, services, property and labor data against prior-month readings, its own forecasts and market consensus. It also uses seasonally adjusted sequential estimates and high-frequency September trackers to translate the activity picture into revised quarterly and annual GDP forecasts.

Methodology notes

• Industry AnalysisSupply-demand framework

  Supply-demand imbalance

  The report contrasts stronger industrial supply and export-linked production with weak investment, household consumption, property activity and employment conditions to explain the softer growth outlook.

• Other

  Seasonal adjustment and sequential growth tracking

  Goldman Sachs uses seasonally adjusted month-on-month estimates for activity indicators and annualized quarter-on-quarter GDP growth to distinguish underlying momentum from calendar and base effects.

Key data

• Industrial production+5.2% yoy in AugustUp from +4.5% in July; above Goldman Sachs forecast of +4.6% and consensus of +4.8%.
• Fixed-asset investment-10.8% yoy in AugustGoldman Sachs single-month estimate, versus -12.8% in July; year-to-date growth was -7.2%.
• Retail sales+0.4% yoy in AugustDown from +0.6% in July and below +0.8% consensus.
• Services Industry Output Index+4.1% yoy in AugustDown from +4.3% in July.
• Nationwide unemployment rate5.3% in AugustUp from 5.2% in July.
• Q3 2026 real GDP forecast+4.4% yoyCut from +4.6%; sequential forecast cut to +4.0% qoq annualized from +5.0%.
• 2026 real GDP forecast+4.5% yoyCut from +4.6%.

Impact & implications

The report argues that stronger industrial output is not sufficient to offset weak domestic demand. Continued softness in investment, consumption, property and employment leads Goldman Sachs to expect weaker Q3 growth, while potential additional stimulus later in the year remains conditional on further slowing and pressure on the full-year growth target.

Risks

• Renewed risks from the Middle East conflict could weigh on growth and disrupt supply chains.
• Recent property policies accelerating the shift to a completed-home sales model could create a near-term growth drag.
• Delayed policy easing could leave domestic demand weaker for longer.
• The revised youth-unemployment definition may understate stress among younger workers.

What to watch

• Whether September activity rebounds as it has in recent quarter-end months.
• The pace of government bond issuance and evidence of fiscal support.
• High-frequency activity indicators for the first half of September.
• Whether further growth weakness prompts additional stimulus from the State Council, MOF and NDRC.
• Property sales, housing prices and signs of stabilization in large cities.