China’s economy has grown at a slightly faster pace than expected in the second quarter, showing resilience in the face of US tariffs, though analysts warn of intensifying headwinds that will ramp up pressure on policymakers to roll out more stimulus.
The world’s number two economy has so far avoided a sharp slowdown in part due to a fragile US-China trade truce and policy support, but markets are bracing for a weaker second half as exports lose momentum, prices continue to fall, and consumer confidence remains low.
Data on Tuesday showed China’s gross domestic product (GDP) grew 5.2 per cent in the April-June quarter from a year earlier, slowing from 5.4 per cent in the first quarter, but just ahead of analysts’ expectations in a Reuters poll for a rise of 5.1 per cent.
“China achieved growth above the official target of five per cent in Q2 partly because of front loading of exports,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
“The above target growth in Q1 and Q2 give the government room to tolerate some slowdown in the second half of the year.”
On a quarterly basis, GDP grew 1.1 per cent in April-June, the National Bureau of Statistics data showed, compared with a forecast 0.9 per cent increase and a 1.2 per cent 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.
But 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.
Data on Monday showed China’s exports regained some momentum in June while imports rebounded, as factories rushed out shipments to capitalise on a fragile tariff truce between Beijing and Washington ahead of a looming August deadline. China is aiming for full-year growth of around five per cent.
The latest Reuters poll projected GDP growth to slow to 4.5 per cent in the third quarter and 4.0 per cent in the fourth, 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.
June activity data also released on Tuesday painted a mixed picture – industrial output grew 6.8 per cent year-on-year in June, quickening from the 5.8 per cent pace in May and beating forecasts, but retail sales growth slowed down.
Fixed-asset investment grew 2.8 per cent in the first six months from a year earlier, slowing from 3.7 per cent in January-May and missing analysts’ forecast of 3.6 per cent.
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