China's Economic Growth Slows to 4.3% in Q2, Missing Forecasts Amid Weak Domestic Demand
China's economy grew at its slowest pace since late 2022 in the second quarter, expanding just 4.3% year-on-year—below both analyst expectations of 4.5% and the government's annual target of 4.5%-5%. Weak consumer spending and property market troubles offset strong export growth as the country faces a deepening economic imbalance.
China's Economy Stumbles Below Growth Target
China's National Bureau of Statistics reported the economy grew 4.3% in the quarter ending June 30, compared to the same period a year ago. The figures fell short of expectations for 4.5% growth and are a rare admission of economic weakness for China, which has long worked to prop up industrial activity with infrastructure investment and exports.
The result also falls short of China's target for 4.5-5% expansion this year, the lowest since Beijing started announcing such figures in the early 1990s. The growth rate lagged behind Beijing's annual target and marked the slowest pace since late 2022. It was the weakest quarterly growth since Q2 2024, as soft domestic demand and the oil shock linked to the Iran war offset resilient exports.
Diverging Economic Tracks: Exports Strong, Domestic Demand Weak
China's exports in the second quarter surged 27%, exceeding analyst expectations off strong trade in semiconductors and computer parts. Trade data this week showed that China's monthly car exports surpassed 1 million for the first time in June. However, despite growing international demand for Chinese goods, domestic consumption remains a critical weak spot in the nation's economic development. The divergence underscores an increasingly pronounced "two-track economy" in China – advanced technologies are powering its thriving export engine, while demand for everyday goods stagnates at home.
Retail sales, a key measure of consumption, rose 1% year-over-year in June. June retail sales edged up 1%, but real-estate investment plunged 18% in the first half, and new-home prices continued to decline. The latest figures highlighted an increasingly uneven recovery, with manufacturing remaining a key growth driver while household consumption and private investment stayed subdued amid the prolonged property downturn and the lingering effects of higher energy costs.
Policy Response and Economic Outlook
Analysts said the persistence of such underlying weakness also raises the question of whether Chinese officials will turn to more fiscal stimulus to try and boost domestic spending. Premier Li Qiang has called for stronger counter-cyclical measures, turning investor attention to a late-July Politburo meeting, though economists expect only modest fiscal stimulus barring a sharper downturn.
The National Bureau of Statistics said in a statement that external uncertainties remained elevated, while the economy continued to face an imbalance between robust supply and weak demand. Analysts polled by Reuters see full-year growth at 4.6%, down from 5% in 2025. Economists expect China's growth momentum to weaken over the rest of the year, weighed down by mounting external headwinds, particularly if the Middle East crisis is prolonged.