After a strong start to the year, China’s economy is now slowing in the second quarter, weighed down by ongoing trade disputes with the United States and a prolonged downturn in the real estate sector. Analysts expect this situation could push Beijing to introduce further measures to sustain growth.

Despite the challenges, China has so far avoided a major slump thanks to a partial trade agreement with Washington and existing government interventions. However, investor sentiment is beginning to shift toward caution in the second half of the year.


📉 Exports Weaken, Prices Decline, and Consumer Confidence Stays Low

Several signs point to a slowdown: sluggish export performance, persistent deflationary pressures, and weakening consumer sentiment are dragging on the world’s second-largest economy.

According to Reuters, GDP data to be released Tuesday at 2:00 GMT is expected to show a year-on-year growth rate of 5.1% in Q2 — down from 5.4% in the first quarter.


📊 Morgan Stanley Warns of Further Deceleration in H2

Morgan Stanley analysts caution that despite steady growth in early 2025, the second half of the year may be weaker due to the fading momentum of early exports, ongoing deflationary cycles, and the impact of tariffs on direct exports to the US.

They project growth in Q3 could fall below 4.5%, with Q4 facing a tough comparison base — potentially jeopardizing the government’s annual growth target.


💰 Beijing May Unveil New Stimulus

Morgan Stanley predicts Beijing could launch an additional fiscal package between 500 billion and 1 trillion yuan by the end of Q3.

June’s trade data showed signs of a rebound in imports and a slight export uptick, driven by efforts to meet the deadline for the US tariff truce expiring in early August. However, upcoming June indicators such as factory activity and household spending are likely to show further cooling.

A Reuters poll forecasts quarterly growth of 0.9% in Q2, down from 1.2% in Q1. Annual growth in 2025 is expected to slow to around 4.6%, with a further decline to 4.2% in 2026 — falling short of official targets.


👀 Markets Await Politburo Meeting in Late July

Investors are now turning their attention to the upcoming Politburo meeting at the end of July, hoping for policy signals and announcements of new economic support measures.

Experts also anticipate the People’s Bank of China may cut its 7-day reverse repo rate by 10 basis points in Q4, along with a similar cut to the loan prime rate.


🏗️ Production Cuts Risk Labor Market Instability

This year, the government has expanded public works spending and increased household subsidies. The central bank also lowered borrowing costs in May and injected liquidity to counter trade-related challenges.

Still, inflation remains elusive. China’s producer price index (PPI) in June dropped at the fastest pace in two years, highlighting ongoing deflationary concerns.

Authorities are expected to step up efforts to reduce industrial overcapacity while stimulating domestic demand. However, analysts warn that such cuts are difficult to implement without triggering widespread layoffs — a risk in an already weakening job market.




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