ING’s Chief Economist for Greater China, Lynn Song, notes that China’s second-quarter GDP growth slowed to 4.3% year-on-year from 5.0% in the first quarter, the weakest pace since late 2022. Despite growth averaging 4.7% in the first half, Song highlights increasingly weak domestic indicators and rising expectations that policymakers will step up fiscal and monetary support to keep full-year GDP within the 4.5–5.0% target range.

Growth slowdown raises policy pressure

"China's second quarter GDP saw a significant deceleration, down to 4.3% YoY from 5.0% in the first quarter, weaker than forecasts (market: 4.5%, ING: 4.6%). This was the slowest growth in any quarter since the lockdown-impacted fourth quarter of 2022. Through the first half of the year, growth remains within the target range at 4.7% YoY."

"The sharp weakening in monthly indicators, which was largely glossed over in the puzzling 5.0% YoY first‑quarter GDP print, showed up far more clearly in the second‑quarter release. Monthly indicators don’t map cleanly into GDP, but the underlying pulse is unmistakably weak: fixed‑asset investment has slipped deeper into negative YoY territory, retail sales are barely above zero, and net exports remain negative on a YoY basis — even with strong headline export growth — as a surge in imports overwhelms the trade balance.Inflation was also higher in the second quarter, reducing the data's support from the GDP deflator. We'll have to take a closer look at where the growth is coming from once the contribution to GDP data is released in the coming days."

"Overall, we expect China to be able to hit its full-year growth target of 4.5-5.0%. As things stand, risks to our 4.7% YoY full-year GDP forecast look balanced to the downside. It’s uncertain how long it will take to announce and roll out policy support to arrest the downward momentum."

"Without support, we're likely to see growth continue to grind lower. However, as we are in the first year of the 15th Five-Year period, it's likely that policymakers would prefer not to come in at the low end of this band, thereby raising the stakes for the upcoming Politburo meeting."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)