China Q2 GDP growth cools to 4.3%, weakest pace in three and a half years
The miss against forecasts underscores how the Iran-linked oil shock is now compounding, rather than merely coinciding with, China’s long-running property downturn, adding a fresh external drag to an already unbalanced growth mix. The divergence between resilient industrial output and exports on one side and weak investment on the other suggests policymakers face a narrower path to stabilising growth without addressing the property sector directly. The upcoming Politburo meeting takes on added significance given this miss, though analysts’ expectation that Beijing will lean on fiscal rather than aggressive monetary easing suggests any response is likely to be calibrated rather than a decisive stimulus shift. Markets are likely to parse Premier Li’s comments on a stronger counter-cyclical adjustment for clues on the scale of that response.
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China’s economy is growing at its slowest pace since the pandemic era as old and new shocks compound.
Summary:
- China’s economy grew 4.3% year-on-year in the second quarter, below analyst forecasts of 4.5% and slowing from 5.0% in the first quarter
- The pace was the slowest since the fourth quarter of 2022, during the Covid-19 pandemic
- On a quarterly basis, GDP grew 0.9%, in line with forecasts and down from 1.3% in the first quarter
- Retail sales rose 1.0% in June, reversing a 0.6% fall in May and beating forecasts for a 0.1% decline
- Industrial output rose 5.3% year-on-year in June, accelerating from 4.5% in May and beating forecasts of 4.7%
- Fixed-asset investment fell 5.7% in the first half of 2026, a steeper decline than the forecast 4.9% drop and worse than the 4.1% fall in January-May
- Property investment fell 18.0% year-on-year in the first half, widening from a 16.2% drop in the first five months, while property sales by floor area fell 11.6%, new construction starts fell 23.4% and funds raised by developers dropped 20.2%
- New home prices contracted again in June, though at a slightly slower pace, with weak nationwide demand offsetting small pockets of improvement in core cities
China’s economy grew 4.3% year-on-year in the second quarter, official data showed on Wednesday, missing analysts’ forecast of 4.5% and slowing sharply from 5.0% growth in the first quarter, according to Reuters. The reading marked the weakest pace of annual growth since the fourth quarter of 2022, when the economy was still grappling with the Covid-19 pandemic, as weak domestic demand and the fallout from the Iran-linked oil shock outweighed stronger production and exports. On a quarterly basis, GDP expanded 0.9%, in line with expectations but down from 1.3% growth in the prior quarter.
The world’s second-largest economy is becoming increasingly unbalanced, with factory output remaining robust, helped by AI-related exports, while consumption and investment struggled under the weight of a prolonged property slump and the broader energy shock. Separate activity data for June pointed to a genuine improvement in household spending even as investment continued to drag on the wider economy. Retail sales rose 1.0% in June, turning around from a 0.6% fall in May for their quickest growth in three months and beating forecasts for a 0.1% decline. Industrial output rose 5.3% year-on-year, accelerating from 4.5% growth in May and beating expectations for a 4.7% rise.
Fixed-asset investment told a weaker story, shrinking 5.7% in the first half of the year, a steeper contraction than the 4.9% decline expected and worse than the 4.1% fall recorded in the January-May period. The property sector remained the primary drag. Investment in the sector fell 18.0% year-on-year in the first half, widening from a 16.2% drop in the first five months. Property sales by floor area fell 11.6% year-on-year in the first half, following a 10.8% decline in the first five months, while new construction starts measured by floor area were down 23.4%, extending a 22.6% fall in January-May. Funds raised by property developers dropped 20.2%, following a 19.0% decline in the earlier period. New home prices contracted again in June, though at a slightly slower pace than in May, as broad-based weakness in nationwide demand offset small pockets of improvement in core cities.
Investors are now watching closely for an expected late-July Politburo meeting for signals on fresh stimulus that could shape policy for the rest of the year, though analysts do not expect aggressive measures unless growth slows more sharply from here. Premier Li Qiang called on Monday for what state broadcaster CCTV described as a comprehensive and objective understanding of the current economic situation, alongside a stronger counter-cyclical adjustment, amid mounting signs of slowing momentum. Analysts expect Beijing to lean more heavily on fiscal stimulus to cushion any further slowdown, with the central bank seen as constrained in its capacity to deliver aggressive monetary easing even after the recent decline in oil prices.
This article was written by Eamonn Sheridan at investinglive.com.