Goldman Sachs cuts China broad fiscal deficit forecast as weak spending and falling land-sale revenue weigh
Fiscal spending rebounded month on month in September, but remained nearly stagnant year on year, while the decline in property-related revenue widened. Goldman Sachs cut its forecast for the 2026 broad fiscal deficit as a share of GDP from 11.5% to 10.0%. It expects the fiscal drag to ease in the fourth quarter, while the full-year fiscal impulse remains weaker than in 2025.
Original source：Goldman SachsFirst published on Unhidea：Original source date：
Key takeaway
Goldman Sachs believes spending below budget, declining land revenue and the late implementation of easing measures make it difficult for a year-end fiscal improvement to reverse the tightening over the full year relative to the previous year.
Why is Goldman Sachs still cutting its full-year fiscal forecast despite easing measures?
Goldman Sachs cut its forecast for the 2026 broad fiscal deficit as a share of GDP from 11.5% to 10.0%, a reduction of 1.5 percentage points and below the 11.4% recorded in 2025. The reasons are weaker-than-expected actual fiscal support in the first three quarters and the later start to easing this year, which leaves less time for spending within the year.
This measure combines the actual on-budget revenue-expenditure gap with off-budget channels such as local government special bonds, local government financing vehicle bonds, policy bank support and land revenue, making it broader than the official budget deficit. As of September, the seasonally adjusted three-month moving average deficit narrowed from 7.8% of GDP in August to 7.1%, while the twelve-month moving average fell from 9.9% to 9.4%, indicating that overall fiscal support was still weakening.
Why is spending still weak when fiscal revenue is growing faster than budgeted?
General public budget revenue rose 5.1% year on year in the first three quarters, above the full-year budget target of 2.2%; spending over the same period grew just 1.0%, well behind the full-year budgeted growth rate of 4.4%. Stronger revenue performance did not translate into faster spending over the same period.
In September, year-on-year revenue growth fell to -0.1% from 4.7% in August, mainly driven by a decline in tax revenue growth from 5.6% to 0.2%. Slower corporate income tax and property-related tax growth offset the contribution from faster value-added tax growth.
Spending has improved at the margin: according to Goldman Sachs' seasonally adjusted estimates, spending rose 3.4% month on month in September, but was still flat year on year. Its estimated year-on-year decline in infrastructure-related fiscal spending narrowed from 3.7% to 1.3%, alongside a narrowing of the decline in infrastructure investment from 16.8% to 11.6%, indicating that the improvement mainly took the form of a slower decline.
How is property further constraining fiscal space?
Land-sale revenue fell 23.5% year on year in September, a larger decline than the 12.3% drop in August; the decline in property-related tax revenue also widened from 1.9% to 14.6%. Combining the two, Goldman Sachs estimates that government revenue directly from property fell 21.1%, a marked deterioration from the 9.7% decline in August, with pressure on both on-budget tax revenue and off-budget land revenue.
Land-sale revenue fell 27.9% in the first three quarters, contributing to a 18.6% decline in government fund revenue, far from the full-year budget target of 0.6% growth. Goldman Sachs maintains its forecast that full-year land revenue will fall at least 30%, and believes policies to shift toward sales of completed homes could further squeeze developers' cash flow in a weak property market.
Can a fourth-quarter improvement change the assessment that full-year fiscal policy is tight?
Goldman Sachs views the modest easing since the end of September as measures to reverse the earlier tightening and secure the full-year growth target of 4.5%–5.0%. Assuming the announced fiscal measures are implemented before year-end, the bank expects the broad fiscal deficit to widen moderately from its recent low over the coming months, with the drag on growth easing in the fourth quarter compared with the third.
But stronger-than-expected third-quarter GDP has led Goldman Sachs to believe that the full-year growth target is broadly secured, and some proceeds from this year's bond issuance may be reserved for use early next year. Quarterly improvement and full-year tightening can therefore occur at the same time: a rebound in spending at year-end is still insufficient to bring full-year fiscal support up to its 2025 level.
