Economy slows as consumers tighten belts

The Star

15-07-2025

BEIJING: China's economy slowed less than expected in the second quarter of financial year 2025 (2Q25) 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 No. 2 economy has so far avoided a sharp slowdown, in part due to policy support and as factories take advantage of a US-China trade truce to front-load shipments, but investors are bracing for a weaker second half (2H25) 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% – a goal many analysts view as ambitious given entrenched deflation and weak demand at home.
Data yesterday showed China's gross domestic product (GDP) grew 5.2% in the April to June quarter from a year earlier, slowing from 5.4% in 1Q25, but just ahead of analysts' expectations in a Reuters poll for a rise of 5.1%.
'China achieved growth above the official target of 5% in 2Q25 partly because of front-loading of exports,' said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
'The above target growth in 1Q25 and 2Q25 gives the government room to tolerate some slowdown in 2H25.'
China's blue-chip CSI300 Index reversed course to trade down 0.1%, while Hong Kong's benchmark Hang Seng cut gains after the data came in, trading up 0.7%.
On a quarterly basis, GDP grew 1.1% in April to June, the National Bureau of Statistics data showed, compared with a forecast 0.9% increase and a 1.2% gain in the previous quarter.
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 steady 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 trade tariffs.
Further monetary easing is expected in the coming months, while some analysts believe the government could ramp up deficit spending if growth slows sharply.
Separate June activity data also released yesterday underlined the pressure on consumers.
While industrial output grew 6.8% year-on-year (y-o-y) last month – the fastest pace since March – retail sales growth slowed down to 4.8%, from 6.4% in May, hitting the lowest since January to February.
Indeed, the headline GDP numbers held little sway for most households, including 30-year-old doctor Mallory Jiang, in southern technology hub Shenzhen, who says she and her husband both had pay cuts this year.
'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.'
China observers and analysts say 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, a 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 2H25'.
Data on Monday showed China's exports regained some momentum in June as factories rushed out shipments to capitalise on a fragile tariff truce between Beijing and Washington ahead of a looming August deadline.
The latest Reuters poll projected GDP growth to slow to 4.5% in 3Q25 and 4% in 4Q25, underscoring mounting economic headwinds as US President Donald 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% – falling short of the official goal – from last year's 5% and ease even further to 4.2% in 2026, according to the poll.
China'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.
Fixed-asset investment also grew at a slower-than-expected 2.8% pace in the first six months y-o-y, from 3.7% in January to May.
Furthermore, the softer investment outturn reflected the broader economic uncertainty, with China's crude steel output in June falling 9.2% from the year before, as more steelmakers carried out equipment maintenance amid seasonally faltering demand.
'The 3Q25 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.' — Reuters