China’s Q2 GDP expected to slow to 4.5% amid weak demand

China's second-quarter GDP data, due for release on Wednesday, is expected to show the world's second-largest economy grew 4.5% year-over-year in April through June, a marked deceleration from the 5.0% expansion recorded in the first quarter, according to a Reuters poll and an AFP survey of economists. The slowdown would place growth at the lower boundary of Beijing's annual target of 4.5% to 5.0%, intensifying scrutiny over whether policymakers will deploy fresh stimulus in the second half of the year.dailysabah+1

Strong Exports Mask Domestic Weakness

The headline growth figure obscures a widening gap between China's export engine and its struggling domestic economy. June exports surged 27% year-on-year, pushing the monthly trade surplus to a record $125.6 billion, driven largely by global demand for artificial intelligence hardware and automobiles. Yet retail sales fell in May for the first time in more than three years, fixed-asset investment has slumped, and the property sector continues to weigh on household confidence.bushletter+3

"With still no signals that the real estate crisis is coming to an end, it is hard to see a recovery in consumption," said Rabobank's Teeuwe Mevissen, as quoted in the AFP survey.dailysabah

Stimulus Expectations Build

Analysts expect Beijing to pivot from debt resolution toward growth support in the coming months. Guo Shan at Hutong Research told AFP that policymakers would likely "re-prioritize growth, with potential policies to step up investment and support services and employment". The IMF recently upgraded China's full-year 2026 growth forecast to 4.6%, citing resilient exports, but economists warn that external tailwinds may not last — the U.S. trade truce agreed last year expires in November, and the European Union is considering new protective measures.globaltimes+1

AI Boom's Limits

High-tech sectors tied to artificial intelligence and renewable energy have posted what Eurasia Group's Dan Wang called "stellar performance," helping offset broader headwinds from the Iran conflict's disruption to energy markets. China's official manufacturing PMI rose to 50.3 in June, with high-tech equipment manufacturing reaching 53.5. But the AI-driven surge has done little to lift household spending or revive private-sector confidence.cnbc+2

"Ultimately, China's ability to sustain growth will depend on a meaningful recovery in household consumption and a revival in private-sector confidence," said Sarah Tan of Moody's Analytics.dailysabah