Beijing – China’s economic recovery stumbled in July, with factory output growth sliding to an eight-month low and retail sales slowing sharply. The weaker-than-expected readings have heightened pressure on policymakers to unleash fresh stimulus to revive domestic demand and shield the $19 trillion economy from external shocks.
Industrial production rose 5.7% year-on-year in July, the slowest pace since November 2024 and down from 6.8% in June, according to data released Friday by the National Bureau of Statistics (NBS). The figure also fell short of the 5.9% forecast in a Reuters poll.
Retail sales — a key gauge of consumer spending — grew 3.7%, their weakest rate since December 2024 and well below the previous month’s 4.8% expansion. The result missed expectations for a 4.6% rise.
“The economy is quite reliant on government support, but much of that stimulus was front-loaded into the early months of 2025,” noted Xu Tianchen, Senior Economist at the Economist Intelligence Unit. “Its impact is now fading.”
Multiple Pressures Weigh on Growth
The soft data comes as Beijing grapples with a convergence of challenges — from U.S. President Donald Trump’s trade policies and ongoing geopolitical tensions, to extreme weather, domestic overcapacity, and prolonged weakness in the property sector.
Earlier stimulus measures helped avert a steeper slowdown, aided by manufacturers rushing exports during a temporary U.S.-China trade truce. But analysts warn that weak household demand and global uncertainty will continue to drag on growth in the coming quarters.
Investor reaction was mixed: Chinese blue-chip stocks (.CSI300) rose 0.5%, while Hong Kong’s Hang Seng Index (.HSI) fell 1.1% in afternoon trading.
Investment Slows, Strategic Sectors Hold Ground
Fixed asset investment rose just 1.6% in the first seven months of 2025 compared with the same period a year earlier, missing expectations for a 2.7% increase and slowing from the 2.8% growth recorded in the first half.
“Firms may be running on existing capacity rather than building new plants,” said Yuhan Zhang, Principal Economist at The Conference Board’s China Center. However, Zhang noted that certain sectors — including automobile manufacturing, shipbuilding, aerospace, and railway equipment — remain investment bright spots, supported by government policy.
Property Market Malaise Deepens
China’s property sector — a cornerstone of household wealth — continues to weigh heavily on consumer confidence. New home prices fell 2.8% year-on-year in July, marking over two years of stagnation, following a 3.2% drop in June.
“The accelerating downturn in property prices signals that further policy support is needed,” said Lynn Song, ING’s Chief Economist for Greater China. “It’s difficult to expect consumers to spend confidently when their largest asset is losing value each month.”
Beijing has pledged to boost domestic consumption and curb “disorderly” competition in retail pricing, which has seen manufacturers slash prices to clear inventories — reinforcing consumer expectations of ever-cheaper goods.
Adding to the strain, new yuan loans contracted in July for the first time in two decades, underscoring weak private-sector borrowing and investment appetite.
Extreme Weather Adds to Disruptions
The economy has also been hit by record-breaking heatwaves, storms, and floods in recent months, disrupting factory operations, supply chains, and daily business activities.
Growth Outlook Dims
A Reuters poll now projects China’s GDP growth to slow to 4.5% in Q3 and 4.0% in Q4 of 2025, well below the government’s full-year target of “around 5%.” For the year as a whole, growth is forecast at 4.6%, down from 5.0% in 2024, with further easing to 4.2% expected in 2026.
“We see little reason to expect much of a recovery during the rest of this year,” said Zichun Huang, China Economist at Capital Economics. “The latest Politburo meeting offered no commitment to additional fiscal support, suggesting that the fiscal tailwind is fading.”
Bottom line: July’s disappointing economic indicators reveal that China’s post-pandemic recovery remains fragile. Without fresh policy action, the combination of weak consumer sentiment, property market stress, and external headwinds could keep growth well below target in the months ahead.
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