Dragon’s Pulse: China’s Q2 GDP Beats Forecasts, But Momentum Wavers

China's economy expanded 5.2 percent from a year ago in Q2 2025, slightly better than the 5.1 percent Reuters estimate and below Q1's 5.4 percent pace. Quarter-on-quarter seasonally adjusted GDP expanded 1.1 percent, improved from the 0.9 percent estimate. The National Bureau of Statistics also said its half-year annual growth rate was 5.3 percent in 2025, a solid start to the year despite increasing headwinds.

Key Highlights
- Factory production rose by 6.8 percent in June, above the 5.7 percent predicted
- Sales at retail stores decelerated to 4.8 percent year-on-year from 6.4 percent in May
- Fixed asset investment grew 2.8 percent in H1, short of a 3.6 percent Reuters estimate
- Urban unemployment stood at 5 percent in June.

Underlying Trends
- Production activity was maintained by policy accommodation and export diversification
- Consumer demand started to appear exhausted, as retail and housing figures lagged
- The property market continues to lag behind, with cement output declining 22 percent in March.

Policy Outlook
- Economists warn that the headline GDP win may be concealing underlying weaknesses in domestic demand and jobs.
- Beijing is likely to adopt a cautious stimulus strategy with a focus on structural reform and targeted liquidity support
- Analysts predict further rate reductions and fiscal measures if export expansion slows down

Global Context
- US trade tensions and deflationary pressures remain major risks - China's year-long economic growth target of about 5 percent seems feasible, but no certainty.

 Sources: Reuters, CNBC, FXStreet, Bloomberg, China Daily, National Bureau of Statistics.