Goldman Sachs Shocks Markets Re-Upping China's Massive Surplus Forecast After Q4 Data Drop

Goldman Sachs Ups China Surplus Forecast Post-Q4 Data

Goldman Sachs has delivered a notable recalibration of its outlook for the world’s second-largest economy, announcing a significant upward revision to its forecast for China's current-account surplus for the coming year. This adjustment, as reported by @business on Feb 15, 2026 · 5:27 AM UTC, follows the detailed release of China’s fourth-quarter 2025 economic data. The investment bank’s analysts incorporated the final figures, which revealed a stronger-than-anticipated external performance during the tail end of the previous year, leading to the updated projection.

The magnitude of this upward revision underscores the robust nature of China's external sector, even amidst broader global economic uncertainties. While the exact percentage increase is proprietary to Goldman's internal models, sources indicate the adjustment places the surplus forecast substantially higher than previous consensus estimates, signaling an increasing reliance on net exports as a driver of national income. This move suggests that the machinery of Chinese trade and capital flows is performing more aggressively than anticipated by many external observers.

Drivers Behind the Upgraded Surplus Projection

The upward shift in the forecast is not arbitrary; it is rooted in a granular analysis of the components making up the current account. The primary engine remains the merchandise trade balance, which showed unexpected resilience in the final months of 2025.

Improved Trade Balance Figures

Fourth-quarter export figures demonstrated surprising strength, often outpacing softening demand projections from key Western markets. While imports grew modestly, they failed to keep pace with the rising export figures, mechanically widening the trade surplus. It appears that supply chain normalization, coupled with targeted efficiency gains in key manufacturing sectors, allowed Chinese exporters to capture market share even as global trade volumes moderated. This dynamic suggests a structural advantage persisting in core export categories.

Shifting Services Account

Beyond physical goods, analysts closely watched the services account, a traditionally smaller but highly sensitive component. While initial post-pandemic recovery surges in tourism have normalized, unexpected strength was noted in the shipping and transport sub-categories, reflecting continued high utilization rates for global logistics capacity originating from Asia. Although this segment did not dominate the revision, its positive surprise contributed to the overall accretive effect on the current account.

Investment Income Flows

The analysis also factored in evolving dynamics within the investment income ledger. While outflows related to repatriated profits from foreign-invested enterprises were noted, they were partially offset by stronger-than-expected returns on China's substantial holdings of foreign assets. The net effect on the current account from income flows was relatively neutral compared to the trade balance, but critical for ensuring the overall forecast remained robust.

Goldman's Revised Modeling Assumptions

Crucially, the forecast update required Goldman Sachs to tweak its underlying macroeconomic assumptions. Specifically, the bank adjusted its short-term projections for global commodity prices—which affect China's import bills—downward, while simultaneously adopting a slightly more optimistic view on the inventory restocking cycles in developed economies. These dual adjustments provided the mathematical lever needed to push the final surplus estimate higher.

Impact of Weak Domestic Demand on Surplus Widening

A critical narrative emerging from these figures is the increasing divergence between China’s external strength and its internal economic rhythm. The record-high external performance is increasingly juxtaposed against persistent softness in domestic consumption and private fixed investment.

This disparity creates a mechanical outcome: when domestic absorption of goods and services is weak—meaning households and firms are saving more than they are spending or investing—the difference must manifest somewhere else in the balance of payments. In China’s case, lower domestic absorption translates directly into a larger net external saving, which is the definition of a current account surplus. The economy is, by necessity, exporting its excess capacity rather than absorbing it domestically. This pattern reinforces a long-standing challenge for Beijing: engineering a successful pivot toward domestic-led growth.

Implications for China's Macroeconomic Policy Stance

A persistently large current account surplus presents both economic ballast and policy friction for Beijing, setting up complex trade-offs for the People’s Bank of China (PBoC) and the State Council.

Currency Implications

A massive external surplus inherently creates upward pressure on the domestic currency, the Yuan. If capital flows remain stable or increase alongside the trade surplus, the PBoC often faces the choice of allowing the Yuan to appreciate (hurting export competitiveness) or intervening heavily in foreign exchange markets to buy dollars, thereby accumulating reserves. A proactive strategy by the PBoC to manage currency stability in the face of a widening surplus will be closely scrutinized by global partners.

Policy Dilemma

The core policy dilemma sharpens: how does a nation aggressively support its external sectors—which are delivering headline growth numbers—while simultaneously trying to rebalance the economy away from trade dependency toward household consumption? Policies designed to boost internal demand, such as direct stimulus, often run counter to the short-term dynamics that are currently swelling the surplus figures. Sustaining growth while attempting this structural shift is proving to be one of the most difficult balancing acts in modern macroeconomics.

Capital Flows and Reserves

For the immediate term, the rising surplus translates directly into higher accumulation of foreign exchange reserves, assuming the capital account remains broadly balanced or in slight deficit. While large reserves offer a crucial buffer against financial shocks, continuously swelling reserves—especially when driven by trade rather than investment—can sometimes signal inefficiency or an unwanted level of state involvement in global capital allocation.

Market and Investor Reaction

The immediate reaction across major trading desks was one of cautious acknowledgment, rather than panic or exuberant optimism. Currency traders focused intensely on the PBoC’s verbal guidance, looking for any signal that intervention might slow, which could unlock immediate appreciation pressure on the Yuan.

Fixed-income markets reacted subtly, with some investors viewing the strong external position as a bedrock of financial stability, potentially lowering the perceived sovereign risk premium associated with Chinese debt. However, the larger interpretation among asset managers is that this resilience confirms China’s continued role as the dominant global manufacturer, albeit one running against the prevailing wind of deglobalization rhetoric. Early comparisons with forecasts from other major bulge-bracket banks show Goldman Sachs is now among the more bullish institutions regarding the size of the 2026 external account.

Broader Global Context and Trade Tensions

The elevated surplus projection inevitably casts a long shadow over international trade relations. Large, structurally persistent trade imbalances are perennial flashpoints between major economic blocs.

Rising Trade Tensions

A surging surplus, particularly when perceived as being driven by state support or structural advantages rather than pure market forces, often serves as political ammunition for trading partners like the United States and the European Union. This forecast suggests that global trade friction, particularly surrounding subsidies, overcapacity, and market access, is unlikely to dissipate in the near future. Such figures often spur renewed calls in Western capitals for tariffs, non-tariff barriers, or other protectionist measures aimed at leveling the playing field.

Surplus Relative to Global Metrics

When viewed against the backdrop of slower global GDP growth, China's outsized surplus becomes even more pronounced. If global trade volumes expand by only 1-2% but China’s net external saving rises dramatically, the relative share of global trade imbalance attributed to Beijing increases, intensifying the political scrutiny applied to its trade practices across international forums.

Source: X Post by @business