China's Q2 GDP growth tops forecast even as US tariff risks mount

The world's No. 2 economy has so far avoided a sharp slowdown in part due to a fragile U.S.-China trade truce and policy support, but markets are bracing for a weaker second half as exports lose momentum, prices continue to fall, and consumer confidence remains low.

Data on Tuesday showed China's gross domestic product (GDP) grew 5.2% in the April-June quarter from a year earlier, slowing from 5.4% in the first quarter, but just ahead of analysts' expectations in a Reuters poll for a rise of 5.1%.

"China achieved growth above the official target of 5% in Q2 partly because of front loading of exports," said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

"The above target growth in Q1 and Q2 give the government room to tolerate some slowdown in the second half of the year."

On a quarterly basis, GDP grew 1.1% in April-June, the National Bureau of Statistics data showed, compared with a forecast 0.9% increase and a 1.2% gain in the previous quarter.

Investors are closely watching for signs of fresh stimulus at the upcoming Politburo meeting due in late July, which is likely to shape economic policy for the remainder of the year.

Beijing has ramped up infrastructure spending and consumer subsidies, alongside steady monetary easing. In May, the central bank cut interest rates and injected liquidity as part of broader efforts to cushion the economy from U.S. President Donald Trump's trade tariffs.

Further monetary easing is expected in the coming months, while some analysts believe the government could ramp up deficit spending if growth slows sharply.

OUTLOOK DIMS

But China observers and analysts say stimulus alone may not be enough to tackle entrenched deflationary pressures, with producer prices in June falling at their fastest pace in nearly two years.

Zichun Huang, China economist at Capital Economics, said the GDP data "probably still overstate the strength of growth."

"And with exports set to slow and the tailwind from fiscal support on course to fade, growth is likely to slow further during the second half of this year."

Data on Monday showed China's exports regained some momentum in June while imports rebounded, as factories rushed out shipments to capitalise on a fragile tariff truce between Beijing and Washington ahead of a looming August deadline.

China is aiming for full-year growth of around 5%.

The latest Reuters poll projected GDP growth to slow to 4.5% in the third quarter and 4.0% in the fourth, underscoring mounting economic headwinds as U.S. President Donald Trump's global trade war leaves Beijing with the tough task of getting households to spend more at a time of uncertainty.

China's 2025 GDP growth is forecast to cool to 4.6% - falling short of the official goal - from last year's 5.0% and ease even further to 4.2% in 2026, according to the poll.

June activity data also released on Tuesday painted a mixed picture: industrial output grew 6.8% year-on-year in June, quickening from the 5.8% pace in May and beating forecasts, but retail sales growth slowed down.

Fixed-asset investment grew 2.8% in the first six months from a year earlier, slowing from 3.7% in January-May and missing analysts’ forecast of 3.6%.

China's property downturn remained a drag on overall growth, with investment in the sector falling 11.2% year-on-year in the first six months, after slumping 10.7% in January-May.

New home prices in June tumbled at the fastest monthly pace in eight months, separate data showed on Tuesday, underscoring the challenges policymakers face in reviving demand in the sluggish sector even after multiple rounds of support policies.