Key facts
- China's economy is projected to have grown 4.5% year-on-year in the second quarter.
- This growth rate is expected to be at the lower end of Beijing's annual target of 4.5% to 5%.
- Weak domestic consumption and investment are weighing on the economy.
- Resilient exports, particularly in semiconductors, are supporting growth.
- Fresh stimulus measures are anticipated to be limited and calibrated.
- Analysts expect fiscal stimulus to increase, while monetary easing remains constrained.
China's economy is expected to show a slowdown in the second quarter, with gross domestic product (GDP) likely growing 4.5% year-on-year, according to a Reuters poll. This projected growth rate is below the 4.7% forecast in April and would place it at the lower end of Beijing's annual target of 4.5% to 5%.
On a quarterly basis, the economy is forecast to have expanded by 0.9% in April-June, a deceleration from the 1.3% growth seen in the first quarter. Economists attribute this cooling to a persistent slump in domestic demand, particularly in consumption and investment, which is overshadowing resilient export performance. Factory output, however, remains robust, partly driven by AI-related exports and a rush by manufacturers to ship goods to the U.S. ahead of potential tariffs.
Data due on Wednesday is also expected to show industrial output growth quickening to 4.7% year-on-year in June, while retail sales are forecast to have declined by 0.1%. Factory-gate inflation accelerated to a four-year high in June, indicating pressure on manufacturers' profit margins due to weak domestic demand.
Looking ahead, GDP growth is projected to edge up to 4.6% in the third quarter before slowing to 4.5% in the fourth, bringing the full-year growth to 4.6%. Analysts warn that a potential cooling of the AI boom could put downward pressure on export growth in the second half of the year.
Investors are anticipating the late-July Politburo meeting for signals on fresh stimulus measures. However, analysts do not expect aggressive interventions unless growth slows more sharply. Premier Li Qiang has called for stronger counter-cyclical adjustments. Policymakers are expected to lean more on fiscal stimulus to support domestic demand and stabilize growth, with the central bank's capacity for aggressive monetary easing constrained.