The latest report from Fitch reveals a continued decline in both consumption and fixed investment in China, primarily driven by the prolonged downturn in the real estate sector. This situation heightens the risk of deflation becoming more entrenched in the world’s second-largest economy.
The agency describes the outlook for the country as “deteriorated,” emphasizing that managing fiscal and monetary policies to boost domestic demand and counteract deflation stands as a major challenge for Chinese authorities.
Fitch projects a public deficit of 7.9% of GDP by 2026, a slight decrease from this year’s 8.4%, along with an increase in the public debt ratio to over 75% of GDP.
“Domestic demand remains weak, with consumer confidence at low levels, reflected in anticipated property sales dropping by another 7% next year,” the report highlights. It also forecasts a slow exit from the current deflationary cycle, with the GDP deflator expected to hover near zero in 2026.
Despite relief from a recent trade agreement with the United States, which reduced tariffs and suspended certain technology export restrictions, the agency anticipates a moderation in China’s external performance next year. Exports are expected to lose momentum following the pre-order surge recorded in 2025.
For Taiwan, Fitch predicts an economic growth rate of 2.5% in 2026, following a robust 6.1% expansion this year, primarily driven by strong global demand for semiconductors used in artificial intelligence and new technologies.
The agency notes that the external sector will continue to support Taiwan’s economy but warns of risks related to potential U.S. tariffs on semiconductors and a possible slowdown in investment in artificial intelligence. Domestic demand is expected to remain weak, with household consumption showing little strength.
Fitch maintains China’s credit rating at ‘A’ with a stable outlook, following an April downgrade that highlighted “persistent weakness in public finances.” Taiwan’s rating remains at ‘AA’ with a stable outlook, although tensions in the Strait and uncertainty over U.S. policies pose future risks.
