China’s GDP growth set to slow, raising pressure on policymakers

[BEIJING] China’s economy is expected to have slowed down in the second quarter from a solid start to the year. This comes as trade tensions with the US added to deflationary pressures, reinforcing expectations that Beijing may need to roll out more stimulus.

The world’s second-largest economy has so far avoided a sharp slowdown in part due to a fragile US-China trade truce and policy stimulus, but markets are braced for a gloomier second half pressured by slowing exports, weak consumer demand and a persistent property downturn.

Gross domestic product growth in the three months from April to June is forecast at 5.1 per cent year on year, cooling from 5.4 per cent in the first quarter, a Reuters poll of 40 economists showed on Friday (Jul 11).

The projected pace would still exceed the 4.7 per cent growth forecast in a Reuters poll in April, and remain broadly in line with the official full-year target of around 5 per cent.

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.

“We expect second-quarter GDP growth to exceed 5 per cent, compared to 5.4 per cent in the first quarter, indicating that there is no immediate need for additional stimulus,” analysts at Societe Generale said in a note.

GDP growth is projected to slow to 4.5 per cent in the third quarter and 4.0 per cent in the fourth, according to the poll. This underscores 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.

“We see a demand cliff in the second half, driven by multiple factors,” said Ting Lu, chief China economist at Nomura, in a note. Lu cited slowing exports under US tariffs, the fading boost from a consumer goods trade-in programme, austerity measures, and a protracted property slump.

“We believe Beijing will very likely rush to roll out a new round of supportive measures at some point during H2.”

For the whole of 2025, China’s GDP growth is forecast to cool to 4.6 per cent – falling short of the official goal – from last year’s 5.0 per cent and ease further to 4.2 per cent in 2026, according to the poll.

The poll also showed that, on a quarterly basis, the economy is forecast to have expanded 0.9 per cent in the second quarter, slowing from 1.2 per cent in the previous three months.

The government is due to release second-quarter GDP data and June retail sales, industrial production and investment data on Jul 15.

Stimulus alone not enough

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 Trump’s trade tariffs.

Analysts polled by Reuters expect the central bank to cut its key policy rate – the seven-day reverse repo rate – by 10 basis points in the fourth quarter, along with a similar cut to the benchmark loan prime rate (LPR). The central bank is also expected to lower the weighted average reserve requirement ratio (RRR) by 20 basis points during the same period.

But China observers and analysts say stimulus alone may not be enough to address deflation, which deepened to its worst level in almost two years in June.

China’s GDP deflator – the broadest measure of prices across goods and services – is expected to decline further in the second quarter, marking a ninth consecutive quarterly drop, the longest streak since records began in 1993.

Analysts polled by Reuters estimate a 0.1 per cent rise in China’s consumer prices for this year, well below the government’s target of around 2 per cent, before picking up 1.0 per cent in 2026.

Expectations are growing that China could accelerate supply-side reforms to curb excess industrial capacity and find new ways to boost domestic demand.

Chinese government advisers are stepping up calls to make the household sector’s contribution to broader economic growth a top priority at Beijing’s upcoming five-year policy plan, as the trade tensions and deflation threaten the outlook. REUTERS