China’s Economic Growth Faces Challenges Amid Weak Consumption and Tariffs

By bigbreakingwire on July 16, 2025

China’s economy is showing signs of strain, as experts warn that the country’s growth may slow further in the coming months. Despite some positive data, concerns are growing over weak domestic demand, falling property transactions, and the impact of U.S. tariffs.

China’s Q2 GDP Beats Forecasts, But Consumer Spending Lags

China’s economy grew by 5.2% in the second quarter of 2025, slightly ahead of expectations and keeping the country on track to meet its annual growth target of 5%. This performance offers some relief to policymakers, as it signals steady momentum despite global and domestic challenges. However, the pace of growth has slowed from the 5.4% recorded in the first quarter.

While industrial production provided a strong boost—rising 6.8% year-on-year and surpassing forecasts—consumer activity showed signs of weakness. Retail sales in June increased just 4.8%, down from 6.4% in May, missing expectations. Catering sales barely rose, marking their weakest performance since late 2022. Meanwhile, fixed asset investment in the first half of the year rose 2.8%, falling short of the projected 3.6%.

Industrial Growth Isn’t Creating Jobs

Dan Wang, China Director at Eurasia Group, pointed out that while industrial production is the main driver of growth, it is not helping create enough jobs. This is because much of the sector is highly automated. Without job creation, consumer spending is likely to stay weak. Wang added that growth in the third quarter could be at risk if the government does not introduce stronger fiscal stimulus.

U.S. Tariffs and Sluggish Housing Market Add Pressure

Wang also noted that U.S. tariffs introduced under President Trump have hurt China’s exporters. Many small and medium enterprises (SMEs) are struggling, with some facing bankruptcy. This has led to a drop in business confidence. At the same time, the housing market remains weak, with low transaction volumes and slow recovery.

Official GDP Numbers May Overstate Growth

Zichun Huang, a China economist at Capital Economics, believes China’s official GDP data for the second quarter may overstate the real economic situation. According to Huang, the economy has lost momentum and faces serious challenges ahead. These include high tariffs, limited government spending capacity, and deeper structural problems in the economy. Growth is expected to slow in the second half of 2025.

Muted Market Reaction as Growth Already Priced In

Jeff Ng, Head of Asia Macro Strategy at SMBC, said that the market reaction to the latest growth figures has been calm. This is because most investors had already expected growth to stay above 5%. However, Ng warned that this growth is partly due to frontloading—pushing activity earlier in the year—which means the second half could be weaker. Retail sales and domestic demand are still under pressure, although there are some early signs of stabilization.

More Policy Support Likely Needed

Woei Chen Ho, an economist at United Overseas Bank, warned that maintaining the current growth pace will be difficult. She expects a slowdown later in the year as the effects of frontloading fade and the economy faces a high base from the first half. Ho predicts that China’s central bank may cut the 7-day reverse repo rate by 10 basis points in the fourth quarter to support the economy.

Goldman Sachs: No Big Stimulus Expected from China’s July Politburo Meeting

Goldman Sachs economists say that China is unlikely to roll out a major economic stimulus during its upcoming July Politburo meeting. While China’s second-quarter GDP was slightly better than expected, it matched Goldman’s forecast.

Instead of a large-scale package, the economists believe Beijing may introduce small, targeted measures in the second half of the year to support the struggling property sector and ease job market stress.

Retail sales in June slowed to 4.8%, down from 6.4% in May. Goldman attributes this to the impact of early mid-year shopping promotions and funding issues in some areas, which affected sales of durable goods under the government’s consumer trade-in program.

Beijing Likely to Avoid Major Stimulus for Now: Macquarie

Macquarie economists say China’s government is taking a “wait-and-see” approach and is unlikely to announce any big stimulus soon. Since the country’s economy grew more than 5% in the first half of the year—already meeting its full-year target—there’s no strong pressure on policymakers to act quickly.

They note that expectations for China’s growth changed several times: they rose after strong Q1 results, dropped after a tariff hike, and went up again after a trade truce. A similar trend could repeat in the second half. While tariffs won’t stop China from hitting its 5% goal, they will shape how the government chooses to get there, the economists added.

UBS Raises China’s 2025 Growth Forecast but Warns of Slowdown

UBS has increased its 2025 GDP growth forecast for China to 4.7% from 4%, but warns of challenges ahead. Economist Zhang Ning expects the economy to slow in the second half, especially in Q4, with growth likely falling below 4%. He points to weaker exports, a sluggish property market, and slowing consumer spending as key risks. While the yuan may strengthen in the short term, UBS sees the USD/CNY rate possibly reaching 7.1–7.2 by year-end due to economic uncertainty and tariff concerns. UBS also says any new policy support will depend on data, with fresh fiscal stimulus likely in late Q3 or Q4 if the slowdown continues.

Outlook Remains Uncertain

Overall, the outlook for China’s economy in 2025 remains uncertain. Experts agree that while industrial production is strong, weak consumer demand, housing troubles, and trade tensions are major risks. Without more government support and a boost in consumer confidence, economic growth is likely to slow further.