Morgan Stanley Raises China Growth Forecast to 4.8%, Strong Exports and AI Investment Offset Consumer Weakness, Stimulus Expectations Withdrawn

On May 13, 2026, Morgan Stanley released its latest research report raising China's GDP growth forecasts for 2026 and 2027 by 0.1 percentage point each to 4.8 percent and 4.7 percent respectively, driven by robust exports, artificial intelligence and green capital expenditure. The report noted that surging global AI demand has powered Chinese export performance, with export growth projected to reach 10 percent in 2026. The strength of exports has reduced the urgency for stimulus measures, leading Morgan Stanley to withdraw its earlier forecast of fiscal stimulus and further monetary easing in the second half of the year.

The bank also revised up China's GDP deflator forecast by 0.3 percentage point to 0.5 percent, but emphasized that reflation would remain limited, as the labor market remains weak, the property sector continues to adjust, and consumption is still sluggish. On the renminbi, Morgan Stanley expects the People's Bank of China may tolerate modest appreciation of the currency if export performance continues to be strong, and adjusted its year-end dollar-yuan exchange rate target to 6.75 from the previous 7.0.

In a more optimistic scenario featuring stronger-than-expected growth and a weaker dollar driven by fading risk aversion, the yuan could strengthen to 6.7 in the near term before moderating to around 6.8 by mid-2027. However, the report cautioned that the central bank remains concerned about domestic price weakness and is unlikely to use yuan appreciation as a tool to address structural growth imbalances. The Chinese government had set its 2026 GDP growth target in the range of 4.5 to 5 percent, and Morgan Stanley's updated forecast, near the upper end of that band, signals confidence in the Chinese economy's resilience amid ongoing headwinds in the property and consumer sectors, increasingly sustained by export competitiveness and investment in emerging technologies.