China’s economy expanded 5.2% year-on-year in the second quarter, narrowly exceeding market forecasts. Growth outpaced the 5.1% forecast but decreased from 5.4% in the first quarter. Despite US trade pressure, industrial production was still robust.
Yet soft retail sales, declining property investment, and persistent deflation worries have led analysts to caution of escalating challenges in the future. Experts now predict only targeted support measures, rather than a blanket stimulus, ahead of the July Politburo meeting.
Growth Exceeds Estimate, But Pace Slows
China’s National Bureau of Statistics reported 5.2% year-on-year growth of GDP in Q2. This exceeded the estimate of 5.1% but was down from Q1’s 5.4%. On a quarter-on-quarter basis, the economy expanded 1.1%, also exceeding the 0.9% forecast.
Industrial production increased 6.8% in June, beating the 5.7% forecast. Retail sales increased just 4.8%, however, missing the estimated 5.4% and declining from May’s 6.4%.
Fixed asset investment during the first half of 2025 increased only 2.8%, falling short of the predicted 3.6%. Property investment fell 11.2%, deeper than the previous period’s 10.7% drop.
Analysts Expect Cautious Policy Response
Experts believe that the mixed data will not pressure Beijing to implement significant stimulus measures. L&G Asset Management’s Ben Bennett commented that policymakers would be “happy” with the industrial output figures. He commented further that robust growth could put off additional stimulus.
Goldman Sachs’ Lisheng Wang also concurred with this, predicting only “incremental, targeted easing,” particularly to favour the property market and alleviate labour market strains.
TD Securities analyst Alex Loo explained that the next July Politburo meeting will address the housing crisis. He did not expect fiscal stimulus to be announced, considering the robust H1 performance and imminent August tariff deadline.
AMP’s Shane Oliver explained China’s growth was “just enough” to achieve the 5% target, and officials would continue doing the bare minimum to keep things stable. Despite the toughness, analysts caution that US President Donald Trump’s trade war is still a significant threat. The delicate tariff truce runs out in August.
Eurasia Group’s Dan Wang explained that industrial production is robust but does not generate employment. In the absence of a new stimulus, Q3 growth may stumble. OCBC’s Christopher Wong pointed to weakness in the yuan, pointing to the central bank’s evident desire to preserve currency stability. SMBC strategist Jeff Ng cautioned that retail and consumer confidence are still uncertain. He predicts more deceleration once tariffs are fully implemented.
Outlook Still Cloudy Despite Robust H1
China’s encouraging Q2 data is some good news, but it does not promise smooth sailing ahead. Beijing has already increased spending on infrastructure, reduced interest rates, and injected liquidity to cushion the tariff effect. But deflation fears still loom.
Producer prices fell at their sharpest pace in nearly two years in June. China has set a 2025 GDP target of “around 5%,” but many analysts now forecast 4.6% growth this year and just 4.2% in 2026. As one analyst put it, China’s economy is still “muddling through,” and the pressure on policymakers to act is far from over.
