The Chinese Economy Faces New Challenges... and Morgan Stanley Lowers Its Forecast

Morgan Stanley has lowered its forecast for China's GDP growth in 2026 to 4.6% from 4.8%, following a slowdown in economic activity to 4.3% in June, below expectations and government targets.

The bank attributed this reduction to a slowdown in infrastructure spending, weak consumption, a decline in the real estate sector, and a decrease in refining and petrochemical production due to lower oil prices. It also anticipates that the Chinese government will continue to focus on investing in artificial intelligence and energy infrastructure rather than launching new stimulus packages for consumption.

Nevertheless, Morgan Stanley believes the economy could see a gradual improvement during the second half of the year, supported by increased government spending and stable oil prices. 

The real estate sector remains under pressure as construction and sales continue to decline, while industrial production and the Purchasing Managers' Index (PMI) showed limited improvement in June.