China’s economy in 2026 is best understood not as a single growth trajectory but as two divergent ones running in parallel. Citi Research’s 2026 outlook describes this explicitly as a “K-shaped” pattern that is becoming entrenched — one branch defined by booming AI-linked exports and equity markets, the other by a deepening property downturn that shows no clear sign of bottoming, according to Citi’s China Economics 2026 Outlook.

The upside branch: exports and AI are filling the demand gap

External demand has stepped in where domestic consumption has fallen short. High-tech exports are expanding, net exports are now contributing 1.4 percentage points to overall GDP growth, and China’s trade surplus is approaching $1.2 trillion, per Citi’s analysis. In equity markets, AI-related sectors have rallied sharply through 2026, even as “old economy” names — Baijiu, property, coal — have underperformed, illustrating just how concentrated the current growth engine has become.

Citi’s base case anticipates continued measured policy support: roughly RMB 1 trillion in additional fiscal stimulus, a 20 basis-point rate cut, and a 50 basis-point cut to the reserve requirement ratio, with the bank maintaining its 2026 GDP growth forecast at 4.7%.

The downside branch: a property sector still contracting

Housing investment may continue to contract by as much as 13% in 2026, with supply curbs remaining the primary tool policymakers are using to rebalance an oversupplied sector, according to Citi’s outlook. This is not a new phenomenon — it reflects a structural break from China’s prior debt-driven, real-estate-centric growth model — but the persistence of the contraction into a third consecutive year underscores how difficult the rebalancing has proven.

The overcapacity problem underneath the export strength

A separate analysis from the Brussels-based think tank Bruegel offers a less flattering read on the same export data: China’s growth model continues to rely on expanding industrial capacity and exporting to the world rather than lifting domestic consumption, and this has driven a marked increase in China’s global share of manufactured exports — raising international concern about overcapacity, according to Bruegel’s analysis. Capacity utilisation has declined even as exports have grown, pointing to a genuine mismatch between what Chinese factories can produce and what the domestic market can absorb. Producer and export prices have fallen in most months since the start of 2025 as a result — a form of exported deflation that has drawn criticism, and occasional retaliatory trade measures, from the US and EU.

Why the policy response has been narrow rather than broad-based

Despite years of external pressure to shift toward domestic-consumption-led growth, Chinese leaders have largely refrained from adopting broad stimulus measures, instead relying on narrower tools — tax incentives for technology and research, VAT export rebates, and “cash for clunkers”-style trade-in financing for EVs and appliances — partly to avoid adding further to already-elevated debt levels, according to the Congressional Research Service. At the Central Economic Work Conference in late 2025, leaders set a 2026 “proactive” fiscal policy aimed at boosting investment in key industries while maintaining austerity on local government debt — a combination that keeps the K-shaped divergence largely intact rather than resolving it.

Key takeaways

• Citi describes China’s 2026 growth pattern as increasingly “K-shaped”: AI-linked exports and equities surging, property and old-economy sectors declining.
• China’s trade surplus is approaching $1.2 trillion, with net exports contributing 1.4 percentage points to GDP growth.
• Housing investment may contract as much as 13% in 2026.
• Citi maintains a 4.7% GDP growth forecast for 2026, expecting roughly RMB 1 trillion in additional fiscal stimulus.
• Export strength partly reflects overcapacity rather than pure competitiveness, with falling producer and export prices since early 2025.

FAQ

What does “K-shaped” mean for China’s economy? It describes a growth pattern where some sectors (AI, high-tech exports) are expanding strongly while others (property, “old economy” industries) continue to contract — rather than the economy moving uniformly in one direction.

How large is China’s trade surplus in 2026? Approaching $1.2 trillion, according to Citi Research.

Is China’s property sector recovering in 2026? No — housing investment is projected to contract by as much as 13% in 2026, continuing a multi-year downturn.

Malaysia’s economy grew 5.4% in the first quarter of 2026, exceeding both the Department of Statistics Malaysia’s own advance estimate of 5.3% and Bloomberg’s median economist forecast — the second consecutive quarter the country has outperformed expectations despite heightened global uncertainty from the conflict in West Asia, according to Malaysia’s Ministry of Finance. The momentum builds on 5.2% growth recorded in both 2024 and 2025, prompting Prime Minister and Finance Minister Anwar Ibrahim to credit the government’s Ekonomi MADANI reform agenda for sustaining the trajectory.

The three pillars economists point to

Officials at Malaysia’s Invest Syariah Conference described the economy as being supported by three key pillars: exports, investment, and private consumption, according to New Straits Times. Domestic demand expanded 5.2% in Q1, supported by steady household spending amid a buoyant labour market and rising disposable income tied to public-sector remuneration increases and targeted assistance programmes, per the Ministry of Finance. Continued job creation has pushed unemployment down to 2.9% — the lowest rate in a decade.

The Johor-Singapore link as an underappreciated growth driver

A significant part of the forward-looking optimism centres on cross-border integration with Singapore. The Johor-Singapore Special Economic Zone master plan and the Johor-Singapore Rapid Transit System Link are expected to create clearer investment opportunities going forward, according to economist commentary reported by New Straits Times. One economist cautioned, however, that the government should actively encourage the establishment of AI research centres, regional headquarters, and greater participation by local suppliers to maximise the spillover effects of these mega-projects — noting that once construction on such projects is complete, the resulting facilities often don’t directly employ large numbers of people, making broader ecosystem development the real test of long-term payoff.

The official forecast may already be too conservative

The OECD projects Malaysian GDP growth of 4.2% in 2026 and 4.8% in 2027, supported by robust private consumption and technology-intensive investment, particularly in semiconductors, according to the OECD’s Malaysia Economic Snapshot. But given that Q1 2026 growth already came in at 5.4% — well above that full-year projection — analysts at the Invest Syariah Conference suggested the current forecast range “seems quite low given the current momentum of the economy,” per New Straits Times.

Risks that could still slow the momentum

The OECD also flagged that inflation is expected to rise, driven by wage increases, higher energy prices, and associated second-round effects, while external demand faces headwinds from high global energy prices, value-chain disruptions, and continued uncertainty tied to the evolving conflict in the Middle East and renewed global trade tensions — both identified as key risks specifically for Malaysia’s manufacturing exports.

Key takeaways

• Malaysia’s GDP grew 5.4% in Q1 2026, beating forecasts for a second straight quarter.
• Unemployment fell to 2.9%, the lowest in a decade.
• Growth is supported by three pillars: exports, investment, and private consumption.
• The Johor-Singapore Special Economic Zone and RTS Link are seen as key medium-term growth catalysts, contingent on maximising local supplier and AI-research spillovers.
• The OECD’s 4.2% full-year 2026 forecast may understate momentum given the strong Q1 print, though inflation and global trade risks remain.

FAQ

How fast did Malaysia’s economy grow in early 2026? 5.4% year-on-year in Q1 2026, beating both official and Bloomberg consensus forecasts.

What is Malaysia’s unemployment rate in 2026? 2.9%, the lowest level in a decade.

What is the Johor-Singapore Special Economic Zone? A cross-border economic integration project between Malaysia and Singapore, paired with a new Rapid Transit System Link, expected to unlock further investment opportunities in southern Malaysia.

By the official scorecard, Pakistan’s economy had a good year. The Pakistan Economic Survey 2025-26 reports real GDP growth of 3.7%, easing inflation, improved foreign exchange reserves, and a primary fiscal surplus, according to reporting in Pakistan Today. The Asian Development Bank’s July 2026 outlook confirms the trajectory, projecting 3.7% growth for both 2026 and 2027, with inflation forecast at 7.2% for the year, per the ADB’s Pakistan country page.

Yet the same data that shows recovery also shows why it hasn’t reached most households — and understanding that gap matters more for policymakers, investors, and ordinary Pakistanis than the headline growth number itself.

Where the growth is actually coming from

The composition of Pakistan’s 3.7% GDP growth reveals a sharply uneven expansion. Large-scale manufacturing grew 6.1% in FY2025-26 — nearly double the headline rate — while agriculture, which remains the primary income source for tens of millions of Pakistanis, expanded by just 2.9%, according to the Pakistan Economic Survey figures reported by Pakistan Today. That gap is not a rounding error: agriculture still accounts for roughly 23% of GDP and employs over a third of the national labour force, based on the sector breakdown in Pakistan’s economic profile.

In effect, the recovery has been concentrated in industrial and formal-sector output — the parts of the economy captured most cleanly in GDP statistics — while the rural, agriculture-dependent majority has seen far more modest gains, if any.

The stabilization is real — but so is the poverty backdrop

It would be inaccurate to characterize the improvement as illusory. Pakistan’s headline inflation figures, foreign exchange reserve position, and fiscal balance have all genuinely improved from the acute crisis years of 2022-2024, when the country faced a severe balance-of-payments crunch driven by excessive external borrowing, the 2022 floods, and a global energy price shock, according to background compiled in Wikipedia’s account of the Pakistani economic crisis. By June 2025, Pakistan had reportedly led emerging markets in sovereign credit risk improvement, and April 2025 inflation briefly hit a historic low.

But stabilization from crisis is a different achievement than broad-based prosperity. Pakistan’s population below the poverty line stood at nearly 45%, with close to 16% in extreme poverty as of the latest figures cited in its national economic profile — context that helps explain why 3.7% aggregate growth, concentrated in manufacturing, does not translate into a broadly felt recovery. Unemployment remains close to 7%.

What this means for policy and for markets

For investors and multilateral lenders, the read-through is that Pakistan’s macro stabilization — inflation control, reserve accumulation, fiscal discipline — is on track and consistent with the trajectory the IMF has projected under its ongoing programme, with the Fund’s own data showing 2026 real GDP growth near 3.6% and consumer price inflation around 7.2%, according to the IMF’s Pakistan country page. That is the story that tends to dominate sovereign bond pricing and credit-rating commentary.

For domestic policymakers, the harder problem is structural: converting industrial-sector growth into broad income gains requires addressing agricultural productivity, rural credit access, and job creation in sectors beyond large-scale manufacturing — none of which move as quickly as a GDP print. Sindh’s cotton output, for instance, posted a 67% surge by end-July that offset declines in Punjab linked to monsoon disruption, illustrating how volatile and regionally uneven agricultural performance remains even within a single growing season, per Dawn’s business desk.

Key takeaways

• Pakistan’s FY2025-26 GDP grew 3.7%, but large-scale manufacturing (+6.1%) far outpaced agriculture (+2.9%), the sector employing the largest share of the workforce.
• Inflation, reserves, and the fiscal balance have genuinely improved from the 2022-2024 crisis years.
• Nearly 45% of the population remains below the poverty line, meaning macro stabilization has not yet closed Pakistan’s underlying poverty gap.
• The IMF and ADB both project ~3.6-3.7% growth continuing into 2026-2027, with inflation forecast around 7.2%.
• Regional agricultural performance remains volatile — Sindh’s cotton crop surged even as Punjab’s declined amid monsoon disruption.

FAQ

Is Pakistan’s economy actually recovering in 2026? Yes, by macro indicators — GDP grew 3.7% in FY2025-26, inflation has eased, and reserves have improved. But the growth is concentrated in large-scale manufacturing rather than agriculture, which employs more Pakistanis.

Why don’t ordinary Pakistanis feel the recovery? Because growth has been uneven: agriculture, the main income source for over a third of the workforce, grew only 2.9%, versus 6.1% for large-scale manufacturing, and poverty remains near 45% of the population.

What is Pakistan’s GDP growth forecast for 2027? The Asian Development Bank projects 3.7% growth for both 2026 and 2027, broadly matching IMF projections of around 3.6%.