China’s Q2 growth expected to slow as weak demand drags

China's economic growth likely cooled in the second quarter of 2026, with analysts surveyed by AFP forecasting year-on-year expansion of around 4.5%, down from the 5.0% pace recorded in the first quarter. The official GDP data is scheduled for release on Wednesday, July 15.cnbc+3

Exports and AI Demand Provide a Buffer

Despite the deceleration, China remains broadly on track to meet its annual government growth target of 4.5% to 5%. Strong exports, particularly of technology-intensive goods tied to global demand for artificial intelligence components, have partially offset domestic headwinds.economyglobal+4

Shipments to the United States rebounded sharply in recent months, growing 11.3% in April and 35.4% in May, after double-digit declines for much of 2025 when tariffs were ratcheted up. By May, China's exports to the U.S. had recovered to nearly 90% of 2024 levels. A survey by the China Beige Book found that factory activity "accelerated" in June, with "U.S.-bound orders again saw sharp year-on-year gains".cnbc

Weak Domestic Demand Remains a Drag

Consumer spending has lagged behind the export sector. June consumer prices rose just 1% year-on-year, missing expectations of 1.1% and slowing from 1.2% in May, while core inflation edged down to 1%. The People's Bank of China acknowledged a "structural mismatch between strong supply and weak demand" and pledged to maintain an accommodative monetary policy.cnbc+1

Elevated energy costs linked to the Iran conflict have weighed on household budgets, though easing tensions around the Strait of Hormuz and falling oil prices are expected to relieve some pressure in the months ahead.cnbc+1

International institutions have grown more optimistic about China's full-year outlook. The International Monetary Fund raised its 2026 growth forecast to 4.6%, up from 4.4% in April, while the World Bank held its projection steady at 4.4%. Deutsche Bank ↗ 0.51% maintained its forecast of 4.7% for the full year. Goldman Sachs ↘ 0.09% revised up its third-quarter GDP growth estimate to 5% quarter-on-quarter annualized, anticipating that lower oil prices and faster fiscal spending would lift activity after a tepid second quarter.globaltimes+4