March industrial profits rose 16.0% year over year; Goldman Sachs raised its 2026/2027 PPI forecasts

Overview

This Goldman Sachs China macro commentary focuses on March industrial enterprise profit data and the adjustment to PPI forecasts. The report notes that industrial profits rose 16.0% year over year in March, slightly above 15.2% in January-February, but the seasonally adjusted month-over-month increase was only 0.1%, indicating that momentum improved only at the margin. Industrial revenue rose 4.5% year over year, below 5.3% in January-February, and fell 0.2% month over month on a seasonally adjusted basis.

Core views

The core views are: first, the strong year-over-year profit growth in March was mainly driven by favorable base effects, while the month-over-month improvement was limited; second, in terms of profit structure, improvements in upstream sector profits and margins contributed more to the rise in overall profit margins, while downstream profits also turned from negative growth in January-February to positive year-over-year growth in March; third, the higher oil price forecast creates upward pressure on PPI forecasts, prompting Goldman Sachs to raise its full-year 2026 and 2027 PPI forecasts from 1.0% and 0.6% to 1.2% and 0.9%, respectively; fourth, the CPI forecast is unchanged because oil-price pass-through to CPI is weaker than to PPI, and factors such as falling pork prices may offset part of the impact.

Analysis framework

The report uses National Bureau of Statistics industrial profit and industrial revenue data as the basis, combined with Goldman Sachs' seasonally adjusted month-over-month calculations, upstream/downstream profit breakdowns, 12-month average profit margins, and empirical rules for oil-price pass-through to PPI to assess the industrial sector's earnings and inflation outlook.

Methodology notes

• Macro data trackingYear-over-year and seasonally adjusted month-over-month industrial profit analysis

  Observe both year-over-year growth and seasonally adjusted non-annualized month-over-month growth to distinguish low-base effects from true short-term momentum.

  Industrial profits rose 16.0% year over year in March, but seasonally adjusted month over month they rose only 0.1%, so the report attributes part of the strong year-over-year reading to favorable base effects and views the actual sequential improvement as relatively mild.

• Supply chain breakdownUpstream/downstream margin comparison

  Break down industrial-sector profits and margins into upstream and downstream segments to identify the source of changes in overall profit margins.

  On a 12-month average basis, the total profit margin rose slightly in March, mainly driven by improved upstream margins; downstream profits also improved from -0.4% year over year in January-February to 3.9% in March.

• Inflation forecastingEmpirical rule for oil-price pass-through to PPI

  Use changes in oil-price forecasts to estimate the impact on the producer price index.

  Goldman Sachs' commodities team raised its crude oil price forecast by more than 10% due to lower-than-expected Hormuz-related supply flows, and the macro team accordingly raised its PPI forecasts for the third and fourth quarters of 2026 as well as for the full year.

Asset mapping & comparison

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

• China macro assets

  Industrial profits and PPI expectations affect corporate earnings, nominal growth, and policy expectations

  Strengths

  Year-over-year industrial profit growth remained in double digits, with profit margins improving slightly.

  Weaknesses

  Seasonally adjusted month-over-month improvement was limited, and industrial revenue declined month over month, indicating that underlying momentum is not strong.

  Comparison

  March profit growth year over year was higher than in January-February, but revenue growth year over year was lower than in January-February.

  Risks

  Low-base distortion and the timing shift of the Lunar New Year make seasonal adjustment more difficult and may affect the interpretation of short-term data.

• Upstream industry and the oil and gas chain

  Rising oil prices and improved upstream margins are linked to upward PPI revisions

  Strengths

  Upstream profits rose 43.4% year over year, and improving margins drove overall margin expansion.

  Weaknesses

  Upstream profit growth was lower than the 58.5% seen in January-February and remains sensitive to oil prices and supply disruptions.

  Comparison

  Upstream profit performance was significantly stronger than downstream profits, but volatility was also higher.

  Risks

  A decline in oil prices, easing Hormuz-related supply disruptions, or weaker demand would reduce upward pressure on PPI.

• Downstream industry

  Reflects profit recovery after demand and cost pass-through

  Strengths

  Downstream profits improved from -0.4% year over year in January-February to +3.9% in March.

  Weaknesses

  The magnitude of profit improvement remains weaker than upstream, and the month-over-month decline in revenue shows limited demand support.

  Comparison

  Downstream margins are relatively more stable, but they lack the pronounced elasticity seen upstream.

  Risks

  If domestic demand remains weak or cost pressure cannot be passed through, downstream profit recovery may be constrained.

Key data

• March industrial profits+16.0% yoy; +0.1% seasonally adjusted non-annualized month over monthJanuary-February was +15.2% yoy, with seasonally adjusted non-annualized month over month at +0.3%.
• March industrial revenue+4.5% yoy; -0.2% seasonally adjusted non-annualized month over monthJanuary-February was +5.3% yoy, with seasonally adjusted non-annualized month over month at +7.0%.
• March downstream profits+3.9% yoyJanuary-February was -0.4% yoy.
• March upstream profits+43.4% yoyJanuary-February was +58.5% yoy; the improvement in overall profit margins was mainly driven by upstream margins.
• First-quarter industrial profit growth+15.5%The National Bureau of Statistics said equipment manufacturing contributed 6.8 percentage points, mainly driven by the electronics sector.
• 2026 PPI forecast1.2%The previous forecast was 1.0%.
• 2027 PPI forecast0.9%The previous forecast was 0.6%.

Impact & implications

In terms of investment implications, the report places greater emphasis on marginal changes in industrial profit structure and inflation expectations rather than giving specific asset buy/sell recommendations. Improved upstream margins and rising oil prices may support PPI expectations, but weaker month-over-month industrial revenue indicates that demand remains soft; the unchanged CPI forecast implies that inflation pressure on the household consumption side may still be relatively limited.

Risks

• March seasonal adjustment was heavily affected by the timing mismatch of the Lunar New Year, creating greater uncertainty in interpreting short-term month-over-month data.
• Year-over-year industrial profit growth may be affected by a low base and may not fully represent true earnings momentum.
• If oil price forecasts and assumptions about Hormuz-related supply flows change, the extent of the upward PPI revision may need to be reassessed.
• The month-over-month decline in industrial revenue suggests continued demand-side pressure, which may limit sustained profit improvement.
• Other deflationary factors such as pork prices may offset the impact of energy prices on CPI and some other price indicators.

What to watch

• Whether seasonally adjusted month-over-month industrial profits and industrial revenue continue to improve in subsequent months.
• Whether the improvement in upstream margins can continue and whether it spreads to downstream industries.
• Changes in crude oil prices and Hormuz-related supply flows.
• Whether 2026 third- and fourth-quarter PPI readings validate the oil-price pass-through assumption.
• The degree of offset within CPI between energy prices and deflationary factors such as pork prices.