China’s industrial output growth slowed to 4.5 per cent in July while retail sales rose just 0.6 per cent, missing expectations and highlighting persistent weakness in domestic demand.
China’s economic recovery showed signs of losing momentum in July as industrial output growth slowed and retail sales rose far less than expected, underscoring persistent weakness in domestic demand and raising pressure on policymakers to support growth.
Industrial output increased 4.5 per cent year-on-year in July, down from 5.3 per cent in June and below the 4.8 per cent growth forecast by analysts, according to data released by the National Bureau of Statistics on Monday.
Retail sales were weaker than expected, rising just 0.6 per cent in July, compared with 1 per cent in June and well below the 1.5 per cent increase forecast by analysts.
The figures point to continued weakness in household consumption despite government efforts to stimulate spending through trade-in subsidies for cars, home appliances and other durable goods.
Extreme weather also disrupted economic activity during the month. Three typhoons made landfall in July, while millions of people were relocated across manufacturing hubs in eastern and southern China, affecting factory production.
Trade-in subsidies lose momentum
China has relied heavily on trade-in subsidies to encourage consumers to purchase cars, home appliances and other durable goods. However, the pace of subsidy distribution weakened again in July.
More from BusinessCiti analysts estimated that average daily sales supported by the subsidies fell to around 6.3 billion yuan ($934.8 million) in July from 9 billion yuan in June.
The slowdown is particularly evident in the automobile sector. Auto sales declined for a 10th consecutive month in July, although the pace of decline moderated.
Chinese automakers are increasingly looking to overseas markets to offset weaker domestic demand, adding to the country’s already strong export performance.
Investment remains under pressure
Fixed-asset investment contracted 6.7 per cent in the first seven months of 2026, compared with a 5.7 per cent decline during the January-June period. The latest reading was also weaker than the 6 per cent decline expected by analysts.
Other economic indicators have pointed to a weak start to the third quarter. China’s official manufacturing purchasing managers’ index unexpectedly slipped into contraction in July, while export and import growth both moderated from June, although they remained in double-digit territory.
Strong exports, helped by global demand linked to the expansion of artificial intelligence infrastructure, have continued to support China’s manufacturing sector.
However, weak domestic demand remains a key risk for the world’s second-largest economy, leaving it vulnerable to external shocks, extreme weather and rising trade barriers.
Trade surplus adds to global tensions
China recorded another monthly trade surplus of more than $100 billion in July, putting the full-year surplus on track to exceed $1 trillion for a second consecutive year.
The widening trade imbalance has increased concerns among major trading partners. The European Union is considering tougher measures to address its trade deficit with China, while the United States has imposed new tariffs on Chinese goods.
Chinese policymakers have pledged to accelerate fiscal spending and introduce additional measures to support the slowing economy. However, authorities have so far stopped short of signalling a major new stimulus package.
The latest data reinforce concerns that China’s economy is entering the second half of 2026 with weak domestic demand, slowing industrial activity and an increasing reliance on exports to sustain growth.
