After a positive start to the year, which had fueled some optimism about growth prospects, the most recent data indicate a progressive deterioration of the economic outlook. The GDP growth forecast remains set at 4.4%, reflecting a more fragile context than expected.
The slowdown is particularly evident on the domestic demand front. Investments show a generalized weakening, with the first signs of impact linked to tensions in the Strait of Hormuz. Industrial production has also lost momentum, reaching the lowest level in the last three years. On the consumption side, the situation appears particularly weak: retail sales grow by just 0.2% year-on-year, while household credit slows down, confirming the continuation of the deleveraging process. The real estate sector shows only timid signs of stabilization, yet to be confirmed.
This weakening largely reflects disappointment over the limited fiscal easing observed in April, after a strong advance of stimuli in the first quarter. So far, policymakers’ stance has changed little, although the PBoC (central bank) has increased liquidity support to the real economy. Looking ahead, it is likely that authorities will adopt a pragmatic approach, intervening with increased public spending to support investments should the deterioration continue.
Despite the difficulties, some positive elements emerge. PMI indices remain resilient, especially in the manufacturing sector, and export growth is very robust despite tariffs and stricter controls on trade flows. China fully benefits from the trend related to artificial intelligence, but the strength of exports also concerns strategic sectors such as electric vehicles (EV), solar energy, and batteries, contributing to a possible upside risk for GDP.
On the geopolitical front, the conflict with Iran remains a source of uncertainty, with an economic impact not yet fully visible. The meeting between Trump and Xi did not produce significant concrete results but contributed to an improvement in the climate of bilateral relations. Progress on the trade front remains limited, although both parties show goodwill. Possible new tensions could emerge, but an escalation comparable to that of 2025 is not expected, thanks to a more constructive attitude. The prospect of further meetings between the two leaders leaves open the possibility of positive developments in future dialogue.
