China’s economy slows as consumers tighten belts, US tariff risks mount
The nation has so far avoided a sharp slowdown in part due to policy support and as factories took advantage of a trade truce to frontload shipments
[BEIJING] China’s economy slowed less than expected in the second quarter in a show of resilience against US tariffs, though analysts warn that weak demand at home and rising global trade risks will ramp up pressure on Beijing to roll out more stimulus.
The world’s second-largest economy has so far avoided a sharp slowdown in part due to policy support and as factories took advantage of a US-China trade truce to frontload shipments. But investors are bracing for a weaker second half as exports lose momentum, prices continue to fall and consumer confidence remains low.
Policymakers face a daunting task in achieving the annual growth target of around 5 per cent – a goal many analysts view as ambitious given entrenched deflation and weak demand at home.
Data on Tuesday (Jul 15) showed China’s gross domestic product grew 5.2 per cent in the April-to-June quarter from a year earlier, slowing from 5.4 per cent in the Q1, but just ahead of analysts’ expectations in a Reuters poll for a rise of 5.1 per cent.
“Despite a strong H1, the outlook is set to sour in H2 as export frontloading fades and the impact of US tariffs becomes more visible,” said Wei Yao, an economist at Societe Generale. “Renewed weakness in house prices and the fading impact of subsidies also cast doubt over the sustainability of the consumption recovery.”
Indeed, the solid headline GDP numbers held little sway for most households including 30-year-old doctor Mallory Jiang, in the southern tech hub Shenzhen, who said she and her husband had pay cuts this year.
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“Both our incomes as doctors have decreased, and we still don’t dare buy an apartment. We are cutting back on expenses: commuting by public transport, eating at the hospital cafeteria or cooking at home. My life pressure is still actually quite high.”
On a quarterly basis, GDP grew 1.1 per cent in Q2, the National Bureau of Statistics data showed, compared with a forecast 0.9 per cent increase and a 1.2 per cent gain in Q1.
Investors are closely watching for signs of fresh stimulus at the upcoming Politburo meeting due in late July, which is likely to shape economic policy for the remainder of the year.
Beijing has ramped up infrastructure spending and consumer subsidies, alongside monetary easing. In May, the central bank cut interest rates and injected liquidity as part of broader efforts to cushion the economy from US President Donald Trump’s sweeping tariffs.
Some analysts believe the government could ramp up deficit spending if growth slows sharply.
China’s markets wobbled slightly, but the overall reaction to the data was largely muted.
Households pressured
Separate June activity data also released on Tuesday underlined the pressure on consumers. While industrial output rose 6.8 per cent year on year last month – the fastest pace since March – retail sales growth slowed down to 4.8 per cent, from 6.4 per cent in May and hitting the lowest since January-to-February period.
China observers and analysts said stimulus alone may not be enough to tackle entrenched deflationary pressures, with producer prices in June falling at their fastest pace in nearly two years.
Zichun Huang, China economist at Capital Economics, said the GDP data “probably still overstate the strength of growth”.
“And with exports set to slow and the tailwind from fiscal support on course to fade, growth is likely to slow further during the second half of this year.”
Analysts at ANZ expect the economy to slow in the second half, but raised their 2025 GDP growth forecast to 5.1 per cent, from a previous estimate of 4.2 per cent, noting that deflation remains the “key threat”.
Data on Monday showed China’s exports regained some momentum in June as factories rushed out shipments to capitalise on the fragile tariff truce between Beijing and Washington ahead of a looming August deadline.
Tariff, property headwinds
The latest Reuters poll projected GDP growth to slow to 4.5 per cent in Q3 and 4 per cent in Q4, underscoring mounting economic headwinds as Trump’s global trade war leaves Beijing with the tough task of getting households to spend more at a time of uncertainty.
China’s 2025 GDP growth is forecast to cool to 4.6 per cent – falling short of the official goal – from last year’s 5 per cent and ease even further to 4.2 per cent in 2026, according to the poll.
The country’s property downturn remained a drag on overall growth despite multiple rounds of support measures, with investment in the sector falling sharply in the first six months, while new home prices in June tumbled at the fastest monthly pace in eight months.
China’s top leaders pledged to push forward urban village renovation and quicken a new property development model, state media reported on Tuesday.
Fixed-asset investment also grew at a slower-than-expected 2.8 per cent pace in the first six months year on year, from 3.7 per cent in January-to-May period.
The softer investment outturn reflected the broader economic uncertainty, with China’s crude steel output in June falling 9.2 per cent from the year before, as more steelmakers carried out equipment maintenance amid seasonally faltering demand.
“Q3 growth is at risk without stronger fiscal stimulus,” said Dan Wang, China director at Eurasia Group in Singapore. “Both consumers and businesses have turned more cautious, while exporters are increasingly looking overseas for growth.”
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