Fitch Ratings: Risk of Renewed Deflation Exists in China's Economy
International credit rating agency Fitch reported that China has exited deflation, but risks persist if there is no sustained recovery in domestic demand.
According to a recent report published by Fitch Ratings, China's economy showed an exit from deflation in the second quarter of 2026, but the risk of re-entering deflation remains on the table if a strong recovery in domestic demand cannot be achieved.
Positive Development in the Second Quarter
In the report prepared by Fitch Ratings, it was clearly stated that China's economy exited deflation in the second quarter of 2026. It was reported that the GDP deflator recorded a 1.6 percent growth on an annual basis.
A Historical First Was Recorded
The report specifically drew attention to the fact that this announced rate bears the feature of being the first positive result recorded since the first quarter of 2023. This situation provided temporary relief.
No Permanent Price Increase
It was emphasized that the current economic picture does not indicate a permanent price increase trend, and that the country could face the danger of deflation again if a stronger recovery in domestic demand is not seen.
Weak Price Pressures Will Continue
While it is anticipated that price pressures in the economy will continue to remain weak, the Consumer Price Index is expected to rise to 1.2 percent by the end of 2026. In addition, it is estimated that this upward trend will continue in 2027.
Labor Market and Consumer Confidence
It was stated that weak employment dynamics in the labor market directly limit wage increases. This situation was expressed as one of the main factors suppressing consumer confidence.