China’s economy heads into the second half of January under renewed scrutiny as fresh data and policy signals reinforce concerns that growth remains uneven and increasingly vulnerable to both domestic and external pressures, according to Moody’s Analytics.
The week of January 17 to 23 is set to bring key economic releases across Asia, led by China, which is scheduled to publish its December-quarter gross domestic product figures on Monday. Growth is expected to slow to 4.2 percent year on year from 4.8 percent in the September quarter, bringing full-year expansion to around 4.9 percent.
While that outcome would allow officials to claim they have effectively met their target of “around 5 percent,” the underlying picture remains deeply uneven. Exports continue to prop up activity, while households remain cautious amid fragile domestic demand and weak confidence.
Elsewhere in the region, South Korea is expected to report modest momentum. Fourth-quarter GDP is forecast to grow 0.3 percent quarter on quarter, with full-year growth for 2025 estimated at 1.1 percent.
Strong global demand for semiconductors likely drove exports late last year and is expected to carry into early 2026, although tariffs and rising foreign competition are weighing on other manufactured goods. Domestic demand is showing tentative improvement and should strengthen further in the coming quarters, helped by fiscal support and easing inflation pressures.
In Japan, attention will turn to the Bank of Japan, which meets on Thursday and Friday. Policymakers are widely expected to keep interest rates unchanged, though Governor Kazuo Ueda has signaled that further rate hikes remain on the table.
Japan will also release December inflation data, with core inflation projected to ease to 2.5 percent year on year from 3 percent in November, while headline inflation is expected to slow more sharply to 2.2 percent from 2.9 percent.
The moderation in prices will offer some relief to households squeezed by falling real wages, although slower nominal wage growth means a sustained recovery in purchasing power remains distant.
For China, the start of 2026 has brought a familiar sense of déjà vu. Authorities have once again pledged stronger policy support to stabilize growth and restore confidence, but doubts linger over whether action will match rhetoric.
On the eve of the new year, the National Development and Reform Commission announced plans to allocate CNY295 billion, or about $42 billion, to boost investment in 2026. The funding, equivalent to roughly 0.2 percent of GDP, is largely earmarked for infrastructure projects spanning transportation, water, energy and scientific research.
While the move signals intent, last year’s experience offers a cautionary note, as fiscal spending growth tapered as 2025 progressed and failed to materially lift household confidence.
Officials have also extended the consumer goods trade-in program for a third year, allocating an initial CNY62.5 billion, less than 0.1 percent of GDP, with more support likely later in the year. The scheme, which totaled CNY300 billion in 2025, helped boost sales of items such as smartphones and household appliances.
In 2026, electric vehicles have been added, even as the number of eligible home goods has been reduced, reflecting efforts to fine-tune a program whose impact is starting to fade. With pent-up demand largely exhausted after nearly two years, subsidies can pull spending forward but are unlikely to close the deeper confidence gap without stronger income prospects and a broader social safety net.
The persistent drag from the property sector remains a central challenge. Authorities moved on January 2 to remove value-added tax on homes sold after two years of ownership, a step that may reduce transaction friction but falls short of more forceful measures such as purchase subsidies.
Financial strain continues to mount across the sector, including at major developers such as China Vanke, as falling prices erode balance sheets. Property prices are expected to keep sliding through 2026, underscored by the real estate climate index, which fell to a record low of 91.9 in November, highlighting just how far the market remains from recovery.
The property slump is also spilling over into manufacturing. Metal producers that long depended on construction demand are grappling with weaker orders and chronic oversupply, squeezing prices and margins and spreading losses across the sector.
Some firms are adapting by cutting construction-focused steel output, such as corrugated bars and wire rods, while ramping up production of rolled steel and strip for broader manufacturing, signaling a search for demand beyond real estate.
At the same time, the external environment is becoming less supportive. Exports have cushioned China’s domestic weakness in recent years, but that buffer is thinning as global trade conditions deteriorate. Even under a fragile trade truce, shipments to the United States are expected to continue falling in 2026, building on a 19 percent year-on-year slump in the first 11 months to November.
Recent purchases of nearly 10 million tonnes of U.S. soybeans suggest relations may not worsen rapidly, but the truce is time-limited and set to expire before the end of the year, pointing to renewed negotiations and potential friction ahead.
Taken together, these forces leave China entering 2026 under sustained strain. With cautious policy support, weak confidence at home and a tougher external backdrop, Moody’s Analytics expects economic growth to ease to about 4.4 percent in 2026 from around 5 percent in 2025, making a slowdown increasingly hard to avoid.