Goldman Sachs reported a clear decline in China’s retail sales momentum over the most recent year, noting that nominal growth fell from 5.0% year-over-year in the first half of 2025 to 2.5% in the second half of 2025, and then to 1.3% in the first half of 2026. The bank also pointed out that real momentum was likely weaker once higher consumer price inflation is taken into account.
Support that had boosted retail activity since late 2024 - the government-subsidized consumer goods trade-in program - has now shifted from a tailwind to a drag, according to Goldman Sachs. The bank estimated that tighter program implementation, reduced subsidy intensity, and a front-loading of durable goods demand together subtracted roughly 90 basis points from first-half retail sales growth. In addition, the planned reduction in purchase-tax relief for new energy vehicles accounted for about 30 basis points of further downward pressure.
Goldman Sachs also examined the influence of energy market moves. Following the Iran War, vehicle fuel prices in China rose by about 20%. Households responded by cutting fuel purchases by roughly 20% between March and June. That behavioral response left only a minimal net effect on nominal retail sales of petroleum products, the bank said. On that basis, Goldman Sachs judged that lower energy prices are unlikely to lift overall retail sales materially in the months ahead.
The bank investigated weather-related drivers as well. While May and July were hotter than usual and rainfall exceeded normal levels in March, April, and July, Goldman Sachs found that nationwide weather conditions in the first half did not deviate meaningfully from historical averages. Its regression analysis indicated that abnormal weather could explain some category-level sales moves but had only a limited effect on the headline retail sales aggregate.
Looking forward, Goldman Sachs expects continued weakness in retail sales growth for the remainder of the year. Favorable base effects should add about 70 basis points to year-over-year nominal retail sales growth in the third quarter, the bank said, but those base effects are projected to turn negative again in the fourth quarter. On this basis, Goldman Sachs forecasts that retail sales growth will average 1.7% year-over-year in the second half of 2026, leaving full-year 2026 growth at 1.5%.
Summary
Nominal retail sales growth in China has decelerated from 5.0% in H1 2025 to 1.3% in H1 2026. Policy support from a government trade-in program and NEV tax relief has faded, subtracting around 120 basis points of growth in aggregate. Energy price moves and weather variations explain some category shifts but do not materially change the headline outlook. Goldman Sachs expects modest improvement from base effects in Q3 before a renewed slowdown in Q4, and projects H2 2026 average growth of 1.7%, keeping full-year 2026 at 1.5%.