China’s economy likely lost momentum in the second quarter of this year, as soft domestic demand undercut the gains made by strong export performance during a period of global oil market turbulence — and that slowdown is now driving expectations that Beijing will roll out new economic support measures.
The world’s second-largest economy is wrestling with a growing gap between supply and demand. Robust industrial production, fueled in part by exports tied to the artificial intelligence sector, stands in sharp contrast to declining consumer spending and private investment, compounded by a long-running slump in the property market and unpredictable global oil prices.
A Reuters survey of 54 economists projects China’s gross domestic product grew 4.5% compared to the same period last year during the April-to-June stretch — a notable step down from the 5.0% growth recorded in the first quarter. That figure also falls below the 4.7% that economists had anticipated in an earlier Reuters poll conducted in April, and sits at the bottom edge of Beijing’s official full-year growth target of 4.5% to 5%.
Analysts at Goldman Sachs described the situation in a written note: “Growth has become more uneven: exports continue to support headline activity, but domestic demand has softened notably.” They added, “Moreover, the boost from exports has not translated into a stronger labour market or meaningful profit improvement, limiting the pass-through from external demand to domestic growth.”
China’s export figures, scheduled for release on Tuesday, are expected to show continued solid growth in June, though at a slightly reduced pace. Companies have been rushing shipments to the United States ahead of potential new tariffs, capitalizing on the AI-driven demand surge and cutting prices aggressively to attract budget-conscious buyers around the world.
Financial markets are keeping a close eye on a Politburo meeting anticipated for late July, which could offer signals about upcoming policy moves for the remainder of the year. However, analysts do not expect Beijing to take dramatic action unless growth deteriorates more significantly, given that exports remain resilient and Chinese officials are focused on reining in excess factory output to combat deflation.
Looking ahead, the Reuters poll projects GDP growth will tick up slightly to 4.6% in the third quarter before easing back to 4.5% in the fourth. On a quarter-over-quarter basis, the economy is expected to have expanded just 0.9% in the second quarter, compared to 1.3% in the first three months of the year.
For all of 2026, China’s GDP growth is forecast to cool to 4.6%, down from 5.0% last year, with a further dip to 4.4% projected for 2027. The Chinese government is scheduled to release its official second-quarter GDP figures alongside June data on retail sales, industrial output, and investment on July 15 at 0200 GMT.
Economists widely expect China to lean on government spending to cushion any further economic deceleration. The country’s central bank has limited flexibility to make major interest rate moves, even after the recent easing in oil prices. Beijing has set a budget deficit target of roughly 4% of GDP for 2026 and plans significant bond issuance to support growth.
The government is also expected to ramp up fiscal spending after a slowdown in the second quarter that followed a front-loaded burst of support earlier in the year.
Capital Economics wrote in a note that “China’s growth should pick up over the second half of this year as fiscal support ramps up,” but cautioned that “domestic overcapacity will remain entrenched, leaving China’s economy reliant on exports for growth.”
According to the Reuters poll, analysts expect China’s central bank to hold its key policy rate — the seven-day reverse repo rate — steady for the rest of 2026. The weighted average reserve requirement ratio is also expected to remain unchanged in the third quarter, with a possible 20-basis-point reduction in the fourth quarter. The central bank has kept both policy rates and reserve requirements on hold since May 2025, relying instead on short-term liquidity measures to maintain supportive funding conditions while it overhauls its broader monetary policy approach.
On inflation, polled analysts estimate Chinese consumer prices will rise about 1.2% this year — below the government’s approximately 2% target — with that pace holding steady into 2027.
