BEIJING – China’s economy got off to a sluggish start in the second half, reviving pressure on policymakers to support growth after industrial output, consumption and investment all fared worse than forecast.
Industrial production expanded 4.5 per cent in July from a year earlier, slowing for the first time in three months and missing estimates, according to data released by the National Bureau of Statistics (NBS) on Aug 17. Retail sales growth slowed to 0.6 per cent, also underperforming expectations.
The July figures suggest growth in gross domestic product likely decelerated to around 4.1 per cent, below the 4.3 per cent level Beijing needs in the second half to reach its annual growth target, according to Jacqueline Rong, chief China economist at BNP Paribas SA.
Lackluster domestic demand and disruptions caused by extreme weather are setting back an economy already weakened by months of fiscal austerity.
Growth slid below the government’s annual target of 4.5 per cent to 5 per cent in the second quarter despite booming exports, with Bloomberg Economics estimating momentum weakened further at the start of August.
Heavy rainfall and strong winds swept through large swathes of China in July, temporarily shutting down factories and ports, leading to power outages and forcing tens of thousands of people to evacuate. While the disruption may have only a temporary impact, policymakers are likely monitoring the data closely as they assess whether more aid is needed for the economy to ensure their growth goal is within reach.
Fixed-asset investment fell more than forecast at a pace of 6.7 per cent year-on-year in the first seven months, after shrinking 5.7 per cent in the first half. The surveyed urban jobless rate climbed to 5.2 per cent from 5 per cent in June.
“It looks like a slate of disappointing data across the board,” said Lynn Song, chief economist for Greater China at ING Bank. “Another month of deterioration suggests higher odds for some support in the coming weeks and months to help stabilise growth.”
Chang Shu and David Qu from Bloomberg Economics said: “Economic momentum slowed further in the early third quarter ahead of the late-July Politburo meeting, with all major July indicators falling short of even our low expectations.
“On the demand side, private consumption softened modestly, while the contraction in investment deepened sharply. This suggests fiscal spending has yet to pick up from its sluggish pace in the first half.”
Originally slated for publication at 10am, the data release was delayed for five hours after the statistics agency revised its schedule in a break with recent practice. A government ceremony marking the 100th anniversary of late former President Jiang Zemin’s birth was being held in the morning, headlined by a speech from Chinese leader Xi Jinping.
The NBS said that while the economy has remained “stable” so far in 2026, the external environment is “complicated and volatile” and domestic demand has stayed weak.
“Some companies are facing operational difficulties, and the foundation for the economy to stabilise and improve still needs to be consolidated,” it said in a statement accompanying the data release.
China’s property slump, which many economists argue is a key factor weighing on household confidence, has shown no signs of ending. New-home prices slumped at a faster clip in July while real estate investment plunged 19.2 per cent on year in the first seven months, a fresh record low.
Top leaders struck a more supportive tone on the economy at a key policy meeting in July but stopped short of announcing fresh stimulus. Instead, they said the government will plan and introduce “pragmatic and effective” new measures in a timely manner.
Chinese authorities now face a daunting task of reviving business and household spending whose downturn has left the economy reliant on exports to sustain growth.
Underscoring a pronounced imbalance in domestic demand, both consumer and producer inflation slowed more than expected in July as the oil shock from the Iran war subsided, sparking concern that deflationary pressures could re-emerge soon.
Passenger vehicle purchases fell 21 per cent in July, a worrying sign for the broader auto sector that represents the single biggest goods component in total retail sales with a share of about 8 per cent. Meanwhile, Chinese carmakers have continued to see margins being squeezed by high raw material costs and persistent discounting amid fierce price competition with rivals.
And in a sign of further deterioration for sales at home, a gauge of new orders in July’s official manufacturing purchasing managers’ index swung back into contraction by dropping to the lowest in more than three years, boding ill for industrial production. BLOOMBERG
