UBS Economics-China Economic Perspectives _China by the Numbers (July 2025...-116723419

ab22 July 2025Global ResearchChina Economic PerspectivesChina by the Numbers (July 2025) Our guide to Chinese monthly dataWhat the numbers are, what they mean and the outlook going forward.Robust Q2 GDP growth, despite softer retail sales and FAI in June Q2 GDP growth remained robust at 5.2% YoY (vs. 5.4% in Q1). Deflation pressure intensified with a larger decline in the GDP deflator (-1.2% YoY). Resilience in Q2 was supported by better retail sales due to trade-in subsidies and solid exports, partly from front-loading of shipments. The property downturn continued while FAI growth decelerated across the board, despite strong equipment purchases. Industrial production growth edged down in Q2, while service value-added growth improved. June data showed weaker-than-expected retail sales and FAI growth, and further declines in property sales and investment, while solid export growth underpinned strong IP growth. See more in our comment. What to expect for the key growth drivers in H225E? While tariff uncertainties may last beyond H225E, global demand appears better than expected. We expect China’s weighted average US tariff rates to hover around the current high levels for longer. We expect China’s exports to weaken in H2 on the paybacks of front-loading and global tariff shocks, with exports to the US declining more than -24% YoY in Q2. However, given robust exports in H1 (6% YoY), we revise up our 2025 export growth forecast to 1% (vs -6% previously) and expect a modest growth contribution from net exports (+0.6ppt). We think the property downturn is likely to continue in H2, weighing on construction activities and consumer confidence. Consumption growth may moderate in H2 as trade-in subsidies face a high base, while weaker exports and the property downturn dampen household income and confidence.Additional policy stimulus to be data dependent and modest in scale We estimate China's broad AFD expanded 1.1% of GDP in H1 (on YoY basis vs. the full-year plan of 1.5-2%). In H225E, the government will likely deliver the remaining part of broad fiscal stimulus, including planned trade-in subsidies. Considering robust growth in H1 and trade tension uncertainties, we believe additional fiscal stimulus may be modest at >0.5% of GDP. We continue to expect the PBC to cut policy rates by another 20-30bp in H2, and more measures to facilitate property inventory destocking. We also expect more efforts to curb involution competition in the next several quarters, but more market-oriented and complicated than capacity reduction in 2015-16. Additional policy support is likely to be data dependent, and new fiscal stimulus may be introduced around end-Q3 or Q4 after growth deceleration becomes more apparent.Upgrade 2025 GDP forecast to 4.7%, but more challenges ahead Export resilience, the boost from trade-in subsidies from the low base, earlier issuance of government bonds and implementation of planned policy support underpinned H1 GDP growth. We still expect e