China's recovery sputters as consumption, output lose steam

China's economy slowed at the start of the second half of the year, with industrial output and retail sales declining as extreme weather disruptions and weak domestic demand put pressure on policymakers to boost stimulus. Factory output increased 4.5% year-on-year in July, down from 5.3% in June, falling short of the 4.8% growth expected by Reuters.

The disappointing data comes after a second-quarter growth rate that slowed to a three-and-a-half-year low. The National Bureau of Statistics (NBS) stated that fiscal spending has lagged behind, and urged officials to be more aggressive in spending. Investment contracted 6.7% in the first seven months of 2026, compared to an anticipated 6% decline, and fell 5.7% in the first half of the year.

Fu Linghui, an NBS spokesperson, said officials would step up counter-cyclical policy adjustments to support domestic demand. Retail sales grew 0.6% in July, slower than the 1% increase in June, despite summer holiday tourism spending. Analysts noted that the slowdown could be attributed to a consumer goods trade-in scheme that boosted sales a year ago by bringing forward demand.

Extreme weather, including three typhoons and millions of people relocated, likely hampered industrial output and retail sales. Economists estimate that about 52% of household wealth is tied up in real estate, a share that has declined in recent years due to the protracted property crisis. Retail sales grew 0.6% in July, slower than the 1% increase in June.

China's leaders pledged to stimulate the slowing economy by accelerating fiscal spending and introducing new policies, but have not signaled major new stimulus measures.