UBS Economics-China Economic Perspectives _July growth notably weaker; mor...-117287848

ab15 August 2025Global ResearchChina Economic PerspectivesJuly growth notably weaker; more headwinds aheadWeak domestic growth momentum; export growth picked up YoYDomestic activities weakened across the board in July, surprising the market on the downside. Retail sales growth slowed to 3.7% YoY with sales of products with trade-in subsidies softening. Overall FAI growth recorded an unexpected contraction of 5.2% YoY with both infrastructure and manufacturing investment declining, partly due to bad weather. The property downturn deepened and housing prices fell further, while industrial production growth cooled to 5.7% YoY. In contrast, export growth picked up to 7.2% YoY, despite a deeper decline in exports to the US. CPI growth edged down to 0% YoY, while the deep contraction in the Producer Price Index (PPI) continued, down 3.6% YoY. Rmb loans contracted from June, the first negative monthly reading in 20 years, while strong government bond issuance pushed credit growth to 9% YoY. Macro headwinds in the rest of 2025EThe growth deceleration in July suggests previous favourable support factors may have turned less positive or even negative. The property downturn may continue in 2025E in the absence of major progress in inventory destocking. Consumption growth could also decelerate due to weak household income growth and consumer confidence, the lack of large-scale additional stimulus, and a higher base from September due to trade-in stimulus. In addition, although US-China trade talks have been extended by 90 days, we think high US tariffs on China and paybacks from past rushed orders (including indirectly from other economies) will likely weigh on export growth in H2. Additional policy support likely to be data dependent The government has continued to roll out planned macro support measures since July, including creating subsidies for childcare and preschool tuition, distributing the remaining trade-in subsidies in July and October, introducing a 1% interest subsidy on consumer loans and service industries’ borrowing, and reportedly asking central SOEs and AMCs to participate in the inventory destocking programme. As growth headwinds unfold and growth momentum falters, we believe the government may roll out additional broad fiscal stimulus to stabilise growth momentum (we estimate >0.5% of GDP), likely around end-Q3 or Q4, although the weakness in July (if it is sustained) could trigger an earlier introduction. We reiterate our baseline GDP growth forecast of 4.7% for 2025; 4.5-5% YoY in Q3 and below 4% YoY in Q4. For more detail, see our anti-involution report and latest outlook. This report has been prepared by UBS Securities Asia Limited. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES, including information on the Quantitative Research Review published by UBS, begin on page 7. EconomicsChinaNing ZhangEconomistning.zhang@ubs.com+852-2971 8135Jennifer ZhongEconomistS1460516050002jennifer-a.zhong@ubs.com+86-105-832 8324Grace WangEconomistS14