July 15 (Reuters) - China's economic growth slowed sharply to 4.3% in the second quarter from a year earlier, official data showed on Wednesday, missing analysts' expectations as weak domestic demand and the oil shock tied to the Iran war outweighed stronger production and exports.
Analysts polled by Reuters had forecast the April-June quarter gross domestic product (GDP) would expand 4.5% from a year earlier, cooling from a 5.0% gain in the first quarter.
The second-quarter year-on-year growth marked
the slowest pace since the fourth quarter of 2022, when China was grappling with the COVID-19 pandemic. KEY POINTS
* Q2 GDP +4.3% y/y (f'cast +4.5%, Q1 +5.0%)
* Q2 GDP +0.9% q/q (f'cast +0.9%, Q1 +1.3%)
* June industrial output +5.3% y/y (f'cast +4.7%, May +4.5%)
* June retail sales +1.0% y/y (forecast -0.1%, May -0.6%)
* H1 fixed asset investment -5.7% y/y (forecast -4.9%, Jan-May -4.1%)
* H1 property investment -18.0% y/y (Jan-May -16.2%) COMMENTARY
FABIEN YIP, MARKET ANALYST, IG, SYDNEY:
"Growth is still very much powered by manufacturing. What the government wanted to achieve earlier this year, when it set the GDP target, it actually wanted to improve consumption... That story hasn't really played out yet, and it's also been a bit disappointing that there hasn't been a lot of strong stimulus package.
"There's a bit more pressure on the government to put out more material support for the market.
"Unfortunately, I still see the consumer sector as well as domestic demand at a pretty fragile stage for now... so far, we've not had any rate cuts from the central bank. While they talked about being nimble and there is flexibility to cut rates, we haven't really seen significant moves from the central bank, so I think that will also come into focus later in the year."
ANDY JI, ASIAN FX & RATES ANALYST, ITC MARKETS, SHANGHAI:
"The primary drag on the headline growth figure stems from a deepening downturn in domestic investment activity.
"Overall, a high-tech-driven industrial engine running alongside cratering domestic consumption and investment firmly highlights the economy's deeply uneven growth momentum. For policymakers, this imbalance delivers an imperative to pivot away from purely supply-side stimulus. With private investment plunging and property development cratering, reliance on wholesale monetary easing alone will be unable to reignite sluggish domestic demand."
JUNYU TAN, NORTH ASIA ECONOMIST, COFACE, HONG KONG:
"Overall, Q2 data highlights a deepening divergence between domestic and external demand. Export outperformance was still underpinned by AI hardware and green-tech demand, while domestic demand is being weighed down by the prolonged property slump.
"That being said, June data showed some signs of stabilisation in domestic activity - retail sales were supported by accelerated trade-in subsidies, while the pace of decline in fixed investment slowed marginally. But this rebound cannot be sustained without swifter policy action.
"Expect faster special local government bond issuance or new policy financing tools to stabilise investment. But a budget revision looks less likely as this year's growth target is both lower and more flexible. Softer credit growth and investment momentum could also force the PBoC to cut rates sooner than expected."
ZHIWEI ZHANG, CHIEF ECONOMIST, PINPOINT ASSET MANAGEMENT, HONG KONG:
"The economic growth slowed in Q2, but I am not sure it would push the government to change policy stance significantly in the coming months. We need to keep in mind that the Q1 GDP growth was strong at 5%. This means the government is still on track to deliver growth in line with the official target set at 4.5%-5%. Moreover, the export boom just continues to beat expectations, and it will likely remain strong in the short term. The Politburo meeting in the last week of July will shed light on the policy makers' guidance."
BACKGROUND
* China's economy is losing momentum after a stronger-than-expected start to the year, fuelling concerns that weak demand at home is leaving growth increasingly vulnerable to any downturn abroad.
* Recent data has pointed to a deepening imbalance in the world's second-largest economy, with firm industrial output and export activity standing in stark contrast to weak consumer spending and private investment as a prolonged property downturn drags on confidence.
* Economists warn Beijing's reliance on manufacturing and exports to compensate for weak household demand is becoming harder to sustain as global growth cools and external demand loses momentum beyond semiconductors.
* China has largely absorbed the latest oil shock thanks to large stockpiles, a broader energy base and state-controlled fuel prices, but a prolonged rise in energy costs could test that resilience.
* Persistently expensive oil could lift costs for factories, squeeze profit margins and reduce Beijing's room to support growth if inflation rises without a stronger recovery in consumer demand.
* The uneven data underscores the challenge for policymakers to keep growth on track while correcting a deep supply-demand mismatch, with strong production increasingly out of step with weak spending at home.
* China's economic growth is expected to slow to 4.6% in 2026 from 5.0% last year, before easing further to 4.4% in 2027, according to a Reuters poll.
(Reporting by Reuters Asia bureaus; Compiled and edited by Subhranshu Sahu)
