Goldman Sachs sees China retail sales growth staying weak

Investing.com -- Goldman Sachs reported that China's retail sales growth has weakened over the past year, with nominal growth dropping from 5.0% year-over-year in the first half of 2025 to 2.5% in the second half of 2025 and further to 1.3% in the first half of 2026. The bank noted that real momentum was likely weaker when accounting for higher consumer price inflation.

The government-subsidized consumer goods trade-in program, which had supported retail sales from late 2024, has now become a drag on growth. Goldman Sachs estimated that tighter implementation, lower subsidy intensity, and front-loaded durable goods demand reduced first-half retail sales growth by around 90 basis points. The scheduled reduction in new energy vehicle purchase-tax relief added another 30 basis points of drag.

Vehicle fuel prices in China rose by around 20% following the Iran War. Chinese households responded by purchasing 20% less fuel between March and June, resulting in minimal total impact on nominal retail sales of petroleum products. Goldman Sachs stated that lower energy prices are unlikely to boost overall retail sales in the coming months.

The bank's analysis of weather conditions found that while May and July were hotter than usual and rainfall exceeded normal levels in March, April, and July, nationwide first-half weather conditions did not differ meaningfully from historical averages. Goldman Sachs' regression analysis suggested abnormal weather helped explain some category-level sales but had limited impact on headline retail sales.

Goldman Sachs expects retail sales growth to remain low in the second half of the year. More favorable base effects should add 70 basis points to year-over-year nominal retail sales growth in the third quarter before base effects turn negative again in the fourth quarter. The bank forecasts retail sales growth will average 1.7% year-over-year in the second half, keeping 2026 full-year growth at 1.5%.

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