China Industry

Economic activity disappoints in July

Latest reading: China’s industrial output grew by 4.5% year-on-year in July 2026, easing from June’s 5.3% increase and coming in below the market forecast. The slowdown reflected subdued domestic demand and disruptions caused by extreme weather. Manufacturing activity expanded by 5.5%, while output in the electricity, heating, gas and water sector rose by 5.0%. Mining was particularly weak, with production contracting by 4.2%. Retail sales in China increased by just 0.6% from a year earlier in July 2026, losing momentum from the previous month and undershooting expectations. Consumer demand continued to be constrained by weak spending on major purchases, particularly vehicles, as automobile sales dropped by 17.0%. When car sales are excluded, overall retail spending recorded an annual increase of 2.5%. China’s fixed-asset investment contracted by 6.7% year-on-year over the January–July 2026 period, marking a deeper decline than economists had anticipated and a further deterioration from the first half of the year. The property sector remained the main source of weakness, with investment falling by 19.2%. Investment in infrastructure and manufacturing also declined, decreasing by 3.6% and 1.7%, respectively.

Panelist insight: On the implications of the data, Nomura analysts said: “The data lend support to our recent lowering of our forecast of Q3 GDP growth to 4.3% y-o-y from 4.5%, and we expect another round of downward revisions to GDP growth forecasts from those that are still overly optimistic. As widely expected, the mid-year Politburo meeting struck a more supportive policy tone in response to the sharp growth slowdown in Q2. However, subsequent policy meetings from various government agencies over the past three weeks offered limited clarity on Beijing’s policy agenda. Based on the patterns over the past few years, we believe Beijing, in response to the evident slowdown, is likely to unveil more concrete measures in September and October, with most of the policy impact materializing in Q4.”

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