China's economy grew 4.3% in Q2, missing forecasts and marking the slowest pace since the pandemic. The miss adds pressure for a fiscal response at the upcoming Politburo meeting.
Alpha Score of 40 reflects weak overall profile with moderate momentum, poor value, moderate quality, moderate sentiment.
China's economy grew 4.3% in the second quarter from a year earlier, official data showed Wednesday, missing the 4.5% median estimate in a Reuters poll and slowing from 5.0% in the first quarter. The reading was the weakest since the fourth quarter of 2022, when the economy was emerging from Covid-19 lockdowns.
Quarterly GDP expanded 0.9%, in line with forecasts but down from 1.3% in the prior three months.
The growth mix is becoming increasingly unbalanced. Factory output, helped by AI-related exports, posted strong gains. Consumption and investment remain under pressure from a prolonged property downturn and the Iran-linked oil shock.
Activity data for June showed a mixed picture. Retail sales turned positive after a fall in May, rising 1.0% year-on-year and beating the consensus forecast for a 0.1% decline. Industrial output accelerated to 5.3% from 4.5%, also topping estimates.
Investment tells a weaker story. Fixed-asset investment contracted 5.7% in the first half, steeper than the 4.9% decline predicted and the 4.1% drop recorded through May.
Property investment fell 18.0% in the first half, deepening from a 16.2% decline in the first five months. Sales by floor area dropped 11.6%, compared with a 10.8% decline through May. New construction starts fell 23.4%, and funds raised by developers shrank 20.2%. New home prices continued to decline in June, though the pace moderated slightly.
The data reinforce the view that the property slump remains the economy's principal drag, economists said. Without a material turnaround in the sector, broad-based domestic demand will stay weak, even as exports and industrial output hold up.
Policy expectations are now centered on the late-July Politburo meeting. Premier Li Qiang called Monday for a comprehensive and objective understanding of the economy and for stronger counter-cyclical adjustment, state broadcaster CCTV reported. The comments signal that Beijing is preparing a response.
Analysts polled by Reuters expect the government to lean on fiscal stimulus rather than stepped-up monetary easing. The central bank has limited room to cut rates after the recent decline in oil prices, they said. Fiscal measures could include faster bond issuance, infrastructure spending, and further support for local governments.
The weaker growth reading adds to the case for a weaker renminbi. Slower domestic demand reduces the urgency for the People's Bank of China to defend the currency. A renewed depreciation would press on other Asian currencies and raise import costs for commodities.
Commodity markets are also watching for the fallout. The property slump is weighing on demand for steel ingredients like iron ore and for copper. China's crude imports eased in June, though the Iran-linked supply shock complicates the outlook. A continued slowdown in construction activity would keep downward pressure on raw material prices.
For equity markets, the divergence between industrial output and domestic demand means that tech and AI-related stocks may continue to outperform, while property and consumer sectors face headwinds.
Investors now look to the Politburo meeting for clarity on fiscal measures. No date has been set, though the meeting is expected in the final week of July.
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