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China’s weak domestic demand highlights need for urgent stimulus

Q2 growth held at 0.9% for the quarter, but annual growth slowed to 4.3%, while fixed asset investment contracted further in June to -5.7% year to date.

Reported · Written up by our desk · Central Banks

Action Forex said China’s Q2 GDP and June activity data underscored how overall growth continues to lean heavily on external demand, while domestic support for businesses and households appears to be needed. The outlet noted that Q2 GDP met expectations for the quarter at 0.9%, but the annual rate came in at 4.3%, with year to date growth tracking toward 4.7% despite being near the bottom of authorities’ 4.5% to 5.0% full-year guidance.

On the production side, Action Forex pointed to industrial momentum rebounding in June, with industrial production rising to 5.3% year on year after dipping near 4.0% in April and May. It said high-tech manufacturing categories like integrated circuits and industrial robots drove part of the gains, while motor vehicle output was broadly flat year on year at -0.2%, even as new-energy vehicles were up 29.4% year on year.

Action Forex added that the trade picture has continued to strengthen, citing exports up 27% year on year and imports up 36% year on year, leaving the monthly trade surplus at USD126 billion in June. It also flagged softer domestic activity, saying fixed asset investment’s contraction accelerated to -5.7% year to date in June from -4.1% in May.

The outlet further warned that domestic investment weakness looks likely to persist, highlighting that property investment fell 18% year to date and residential property sales were down 13.7% year to date in June. Action Forex linked the domestic picture to a broader concern that additional losses could follow as prices have yet to stabilize.

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