UBS Analyst Zhang Forecasts Moderate Recovery in China’s Economy Amid Structural Shifts

UBS economist Zhang has issued a revised outlook for China’s economy, forecasting 4.8% GDP growth for 2026, up from 4.2% in 2025. The projection hinges on a rebound in private consumption, supported by urban household income gains and targeted fiscal stimulus, including infrastructure investments and local government bond issuance. Core inflation remains subdued, with the CPI expected to average 0.3% year-on-year, reflecting weak demand in housing and durable goods sectors. The S&P CSI 300 index is projected to rise 8% over the year, led by gains in consumer discretionary and technology stocks. Financials are expected to outperform, with the CSI 300 Financials sub-index up 12% on improved credit quality and rising loan demand. In contrast, the real estate sector continues to face headwinds, with property investment declining 6% in Q4 2025, although stabilization efforts in Tier-2 cities may begin to show results by mid-2026. The Chinese yuan (CNY=X) is expected to trade in a narrow band of 7.05 to 7.20 per dollar, supported by stable capital flows and foreign exchange reserves exceeding $3.4 trillion. Commodity demand, particularly for industrial metals and iron ore, remains weak due to subdued manufacturing output, though green energy investments could boost demand for copper and lithium over the medium term. Market participants are closely monitoring these projections, with investors adjusting positions in Shanghai-listed equities (000001.SS) and Shenzhen-listed stocks (000002.SS). The outlook has prompted a modest rally in A-shares, with the CSI 300 gaining 2.3% in early trading post-release.