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Economic Insight
21.07.2026
China’s economy lost momentum in Q2, with GDP growth slowing to 4.3% y/y from 5.0% in Q1, marking the weakest expansion since late 2022. Despite the slowdown, growth averaged 4.7% in the first half of the year, leaving authorities broadly on track to achieve the official 4.5-5.0% growth target for 2026. Recent data suggest that growth continues to rely on manufacturing and exports rather than domestic demand. Industrial production accelerated to 5.3% y/y in June and exports, still a bright spot, surged 27% y/y, driven by technology-related products and AI-linked supply chains, while retail sales increased just 1.0% y/y and fixed asset investment fell 5.7% y/y in the first half of the year. The contrast underscores the economy's growing dependence on external demand to offset weakness in consumption and investment. Additionally, the property sector also continues to act as a structural drag on growth and confidence. Real estate investment weakened further through Q2, while new home prices fell 3.3% y/y in June, extending a decline – albeit at a slower pace – that has now persisted for three years.
Looking ahead, the upcoming Politburo meeting, which is expected to take place in late July, will be closely watched for signs of additional measures aimed at supporting consumption, investment and confidence. In our view, growth is likely to remain resilient in the short term, supported by technology-related exports and industrial activity. However, without a more durable recovery in household demand, China’s expansion risks becoming increasingly vulnerable to any slowdown in global demand or deterioration in the external environment. In the longer term, the broader economic issue is not only whether China can meet the growth target, but how it does so.
