By Kevin Yao
BEIJING, July 15 (Reuters) – China’s economy likely cooled in the second quarter, with growth drifting toward the lower end of Beijing’s annual target as an entrenched demand slump overshadowed resilient exports, though any fresh stimulus measures are expected to be limited.
The world’s second-largest economy is becoming increasingly unbalanced: factory output remains robust, helped by AI-related exports, while consumption and investment continue to weaken under the weight of a prolonged property slump and fallout from the global oil shock.
Data due Wednesday is expected to show gross domestic product (GDP) grew 4.5% year-on-year in April-June, slowing from 5.0% in the first quarter, according to a Reuters poll. The projected pace is below the 4.7% growth forecast in a Reuters poll in April and would be at the lower end of the official full-year target of 4.5% to 5%.
On a quarterly basis, the economy is forecast to have expanded 0.9% in the second quarter, slowing from 1.3% in January-March, the poll showed.
“China’s growth likely cooled notably in Q2 to 4.4% as weak consumption and property activity outweighed resilient exports and a modest quarter-end industrial rebound,” Michelle Lam, greater China economist at Societe Generale, said in a note.
“While producer-led reflation supported nominal growth, policy easing is likely to remain incremental rather than a precursor to large-scale stimulus.”
China’s export growth topped forecasts in June as strong demand for semiconductors and a rush by manufacturers to ship goods to the U.S. ahead of potential new tariffs countered broader concerns about the Iran war and weakening global demand.
However, factory-gate inflation accelerated to a four-year high in June, highlighting persistent pressure on manufacturers’ profit margins as sluggish domestic demand curbed their ability to pass on costs.
GDP data is due on Wednesday at 0200 GMT. Separate June activity data is expected to show industrial output growth quickened to 4.7% year-on-year from 4.5% in May, while retail sales are forecast to have fallen 0.1% compared with a 0.6% decline the previous month.
GDP growth is projected to edge up to 4.6% in the third quarter before slowing to 4.5% in the fourth, bringing full-year growth to 4.6% according to the poll.
“The main risk in the second half is that the AI boom may cool somewhat, putting downward pressure on export growth,” Peking University HSBC Business School (PHBS) said in a research report.
ROOM FOR MORE STIMULUS
Investors are closely watching an expected late-July Politburo meeting for clues on fresh stimulus that could shape policy for the rest of the year. But analysts don’t expect aggressive measures unless growth slows more sharply.
Premier Li Qiang called on Monday for “a comprehensive and objective understanding” of the current economic situation and for a stronger counter-cyclical adjustment, state broadcaster CCTV reported, amid signs of slowing economic momentum.
Analysts expect Beijing to rely more heavily on fiscal stimulus to cushion any further slowdown, with the central bank constrained in its ability to deliver aggressive monetary easing even after the decline in oil prices.
After losing momentum in the second quarter, fiscal spending is likely to accelerate again, as policymakers seek to cushion weak domestic demand and stabilise growth. Beijing has budgeted a deficit of roughly 4% of GDP for 2026 and lined up a heavy slate of bond sales to finance support measures.
“Macro policy has been relatively restrained, leaving room for the second half of the year,” PHBS said.
Analysts polled by Reuters expect the central bank to keep its key policy rate — the seven-day reverse repo rate — unchanged through the end of 2026. They also see the weighted average reserve requirement ratio holding steady in the third quarter before a possible 20-basis-point cut in the fourth.
The central bank has kept policy rates and the RRR unchanged since May 2025, instead relying on short-term liquidity operations to support funding conditions as it overhauls its monetary policy framework and strengthens policy transmission.
(Reporting by Kevin YaoEditing by Shri Navaratnam)
