China’s economic forecast for 2026 presents challenges, according to a report from Commerzbank. It highlights a decline in both manufacturing and services sectors. The official Purchasing Managers’ Index (PMI) signals a weak start to the year, with GDP growth expected to slow to 4.0%, down from 5.0% in 2025.
There is increasing pressure for more economic stimulus from Beijing due to disappointing figures in January. While large state-owned enterprises struggle with low domestic demand, the export sector shows some strength with a slight increase in the private RatingDog Manufacturing PMI, rising from 50.1 to 50.3 points.
Contrasting Performance
Unlike state-owned enterprises, smaller private export-oriented companies remain relatively stable. Overall, China’s economy requires careful observation, especially with mixed signals across various sectors.
The official PMI for January was weaker than expected, showing a downturn in both manufacturing and services. This reinforces the slowing trend we noticed in the second half of 2025. As a result, we are lowering our GDP growth forecast to 4.0% for this year, a full percentage point less than last year’s growth.
These disappointing figures place significant pressure on Beijing to take action, likely in the coming weeks. The People’s Bank of China reduced the reserve requirement ratio in October 2025, which provided a temporary lift. Traders should prepare for another liquidity boost or a possible interest rate cut to enhance weak domestic demand.
One possible outcome is a weaker yuan, as stimulus measures often lead to currency depreciation. Buying call options on USD/CNH could allow us to benefit from this potential shift. Additionally, the Australian dollar is at risk due to its dependence on Chinese commodity demand, making put options on AUD/USD a smart trade choice.
Impact on Commodities
This economic slowdown directly affects industrial commodities. We saw this before when iron ore futures fell over 20% in the first quarter of 2024 due to similar demand concerns. Thus, selling call spreads or buying puts on copper and iron ore futures seems like a wise strategy.
The contrast between struggling state-owned firms and more resilient private exporters is striking. This suggests that weaknesses are mainly domestic, likely impacting broader indices like the Hang Seng and CSI 300. We should consider protective put strategies on ETFs that track these markets, anticipating further declines until a significant policy response emerges.
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