Nomura believes industrial profit growth rose markedly in September from August, mainly driven by higher industrial producer prices. Profit margins improved but remained below the second-quarter average.
Real GDP grew 4.5% year over year in the third quarter, and the full-year growth target looks achievable. But fiscal spending fell in the first nine months, prompting Goldman Sachs to lower its full-year augmented fiscal deficit forecast; the bank also expects the central bank to switch its policy rate benchmark next year.
Goldman Sachs has raised its estimate of the direct drag from real estate on real GDP growth in 2026 from 1.5 percentage points to 1.8 percentage points, but expects it to narrow to 1.3 percentage points in 2027. The key is the property sector’s declining share of the economy; diverging home prices, shrinking household wealth and lost local land revenues will determine how long the adjustment lasts.
Goldman Sachs’ 23 October tracker shows that domestic flights, port throughput and existing-home transactions improved over the past week, while new-home transactions remained well below their year-earlier level and steel demand declined. Fiscal issuance progress and falling funding rates provide another line of observation.
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.
General public budget revenue fell year on year for the first time this year in September, the decline in land-sale revenue widened, and fiscal spending remained behind the budget target. JPMorgan believes the additional local bond quotas can ease local funding pressures, but there is a lag between bond issuance and project execution, so some support for growth will continue into early 2027.
Nomura believes that, although the decline in broad fiscal spending narrowed in the third quarter, it still weighed on growth. Government bond financing is expected to increase significantly in the fourth quarter, but its actual impact will depend on how the funds are used and the constraints corporate arrears place on complementary financing.
