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Since 2026, the global economic landscape has grown increasingly fragmented. In its latest macro research report, Goldman Sachs notes that supply-side shocks arising from the Middle East energy conflict are pushing global stagflation risks from a tail risk to a tangible challenge, with economies experiencing vastly different degrees of impact. Developed economies in Europe and the U.S. have already exhibited
classic stagflationary characteristics, while China’s economy has steered clear of stagflation. Its current core trajectory is a weak recovery, accompanied by partial structural pressures — a perspective that aligns closely with Goldman Sachs’ latest assessment of China’s economy.
Goldman Sachs’ core assessment of global stagflation is that the primary trigger is energy supply disruptions, not overheating demand. Shipping disruptions in the Strait of Hormuz have left the global oil market short of roughly 14 million barrels per day. Goldman Sachs has revised its 2026 Brent crude oil price forecast up to $85 per barrel, and the steady uptick in energy prices has directly reinforced the stickiness of global inflation. Against this backdrop, European and American economies are stuck in a "low growth, high inflation" bind: the Eurozone’s GDP growth rate has been slashed to 0.7%, hovering on the brink of economic stagnation, while inflation has been revised up to 3.2%. The probability of a U.S. recession over the next 12 months has risen to 30%, with core inflation easing at a sluggish pace. Central banks worldwide are forced to juggle raising interest rates to curb inflation and cutting rates to stabilize growth, leaving minimal room for policy maneuvering.
In stark contrast to developed economies in Europe and the U.S., Goldman Sachs explicitly states that China’s economy is not in stagflation and is currently in a phase of weak recovery. This conclusion is supported by both the core definition of stagflation and China’s actual economic data. Stagflation is defined by the coexistence of "economic stagnation, high inflation, and high unemployment" — a scenario that does not apply to China. For growth, Goldman Sachs projects China’s 2026 GDP growth at 4.7%, within the official target range of 4.5% to 5%. While growth has slowed from prior years, reflecting a weak recovery, it is by no means stagnation. On inflation, CPI is expected to edge up to 1.0%, with PPI turning positive at 1.0% and core CPI at just 1.3% — well below the threshold for high inflation, with partial deflationary pressures lingering in some sectors. For employment, the urban surveyed unemployment rate remains steady at around 5.3%. While youth unemployment is structurally high, there has been no widespread joblessness.
Goldman Sachs further observes that China’s weak recovery is marked by "soft domestic demand, supported by external demand, and structural divergence." Domestically, consumption recovery lacks momentum; Goldman Sachs forecasts 4.5% consumption growth for 2026. Meanwhile, the real estate market adjustment has not yet fully stabilized, with development investment still under downward pressure, which has weighed on the pace of domestic demand recovery. Externally, exports have emerged as a key pillar of the weak recovery, with the current account surplus accounting for 4.2% of GDP — offsetting the impact of soft domestic demand to some degree.
Notably, China’s economy does face partial stagflation-like pressures, primarily fueled by rising upstream energy costs that clash with weak downstream demand, squeezing profits for manufacturing firms. However, these pressures do not constitute full-blown stagflation, and their scope and impact are far more limited than those in European and American economies.
On the policy front, Goldman Sachs argues that the People’s Bank of China has not been trapped in the same policy dilemma as its European and American counterparts and still retains some room for policy easing. That said, constrained by factors such as exchange rate volatility and capital outflows, policy easing has been prudent, with the core focus on stabilizing growth and boosting recovery rather than addressing stagflation.
Overall, current global stagflation risks are concentrated primarily in developed economies in Europe and the U.S. While China’s economy is in a weak recovery phase and faces practical challenges — including soft domestic demand and structural divergence — it is not at risk of stagflation. The pace of future recovery will depend largely on the strength of domestic demand recovery and the effectiveness of policy support.
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