China’s factory output and retail sales growth slowed sharply in July, adding pressure on Beijing to deploy further stimulus as the $19 trillion economy faces weakening domestic demand and external shocks.

Factory output rose 5.7% year-on-year in July, down from 6.8% in June and the lowest reading since November 2024, according to data released by the National Bureau of Statistics on Friday. Retail sales growth also cooled to 3.7%, the weakest since December 2024, from 4.8% the previous month.

The figures missed market expectations and suggest momentum is faltering in the world’s second-largest economy. Analysts say early-year stimulus measures have lost potency, while broader demand remains subdued.

“The economy is quite reliant on government support, and the issue is those efforts were ‘front-loaded’ to the early months of 2025,” said Xu Tianchen, senior economist at the Economist Intelligence Unit.

“By now their impact has somewhat faded out,” Tianchen added.

Beijing has pledged further support, including policies to boost consumption and curb excessive price competition, but the outlook remains clouded by ongoing weaknesses in the property market, extreme weather events, and ongoing global trade tensions.

Fixed asset investment grew only 1.6% in the first seven months of the year compared with the same period in 2024, missing forecasts for a 2.7% increase.

"Firms may be running on existing capacity rather than building new plants," said Yuhan Zhang of The Conference Board, though he noted that policy-driven sectors such as aerospace, shipbuilding and rail remained investment bright spots.

The property sector remains a drag on household spending, with new home prices falling 2.8% in July year-on-year, following a 3.2% drop in June. The sector has been largely stagnant for more than two years.

Adding to headwinds, July marked the first contraction in new yuan loans in two decades, underscoring weak private sector demand. Economic activity has also been disrupted by a series of extreme weather events, from record heat to widespread flooding.

Despite a 90-day extension to a U.S.-China trade truce reached in May, Chinese manufacturers continue to struggle with low profits and domestic deflation.

A Reuters poll forecasts China’s GDP growth to fall to 4.5% in the third quarter and 4.0% in the fourth. Full-year growth is projected at 4.6%, below the official target of “around 5%”, and expected to ease further to 4.2% in 2026.

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