China’s economy grew slightly faster than expected in the second quarter, signaling resilience in the face of U.S. tariff pressure. However, analysts caution that weak domestic demand and escalating global trade tensions could intensify the need for additional government stimulus.
So far, the world’s second-largest economy has avoided a sharp downturn, helped by policy support and factories accelerating exports under a temporary trade truce with the United States. Yet many investors remain wary of a more difficult second half, as export momentum wanes, prices continue to fall, and consumer confidence remains subdued.
Beijing is striving to meet its ambitious annual growth target of around 5%, a challenge complicated by persistent deflation and sluggish consumption.
Official data released Tuesday showed that GDP grew 5.2% year-on-year in the April–June period, slightly down from 5.4% in Q1 but above Reuters’ forecast of 5.1%. On a quarterly basis, growth was 1.1%, compared to 1.2% in Q1.
Economist Wei Yao of Societe Generale noted that despite solid performance in the first half of the year, growth is likely to weaken as the effects of early export shipments fade and U.S. tariffs start to bite. Ongoing declines in housing prices and the waning impact of past subsidies are also casting doubt on the durability of consumer spending recovery.
Many households remain under financial strain. Dr. Mallory Jiang, a 30-year-old physician in Shenzhen, shared that both she and her husband experienced pay cuts this year, prompting them to postpone home purchases and reduce daily spending.
Markets responded modestly to the economic data, with only slight fluctuations.
Separate June data emphasized the pressure on consumers: while industrial production grew 6.8% year-on-year—its strongest pace since March—retail sales slowed to 4.8%, the weakest performance since January–February.
Some economists argue that stimulus measures alone may not be enough to overcome entrenched deflation, especially as producer prices in June saw their steepest drop in nearly two years. Capital Economics’ Zichun Huang noted that the headline GDP figure may overstate the true economic strength, predicting further slowdown in the second half as fiscal support fades.
Though ANZ analysts anticipate a slower H2, they revised their 2025 growth forecast upward to 5.1% from 4.2%, while still naming deflation as the primary risk.
June export data showed some rebound as factories rushed shipments ahead of a key August deadline tied to the fragile U.S.-China tariff truce.
Looking ahead, economists expect China’s growth to slow to 4.5% in Q3 and 4.0% in Q4, with full-year 2025 growth forecast at 4.6%, potentially missing the government’s target. By 2026, growth could fall further to 4.2%.
The property sector continues to weigh heavily on the economy. Despite repeated support measures, real estate investment fell sharply in H1, while June saw the fastest drop in new home prices in eight months. Top Chinese leaders have promised to accelerate urban village redevelopment and push forward a new housing model.
Fixed-asset investment also missed expectations, rising only 2.8% year-on-year in H1, down from 3.7% in the January–May period. The broader uncertainty was evident in falling industrial metrics, such as a 9.2% year-on-year drop in crude steel output in June due to seasonal weakness and equipment maintenance.
Dan Wang of Eurasia Group warned that without stronger fiscal stimulus, third-quarter growth could be at risk, as both consumers and businesses grow more cautious and exporters increasingly look abroad for opportunities.
