Chinas Economic Slowdown Deepens as Retail Sales and Factory Output Weaken

Industrial output growth in the world’s second largest economy fell to an eight month low in July as Chinese consumers continued to hold back on spending. The latest data increases pressure on the government in Beijing to introduce further stimulus and reignite domestic demand, which has been dampened by both extreme weather events and persistent frailty in the property sector – a traditional cornerstone of household wealth.

Last month, industrial production grew by 5.7 per cent year on year according to figures from the National Bureau of Statistics, slipping from a 6.8 per cent rise in June and missing market expectations. Retail sales, often viewed as a key indicator of consumer confidence, registered a 3.7 per cent expansion in July. This marked the slowest rate since December 2024 and represents a downturn from June’s 4.8 per cent growth.

Economists noted that the slowdown can partly be attributed to payback following unexpectedly robust online spending at the 618 retail festival – China’s version of Black Friday – which began earlier in 2025. The lingering impact of such sales events appears to have cut into subsequent consumer spending.

Chinese households remain wary amidst record breaking heatwaves, violent storms and widespread flooding which have dented both factory production and day to day commerce. Urban unemployment has edged up, with new yuan loans contracting for the first time in two decades as private sector demand remains subdued. Home values, which have been stagnant since mid 2023, fell 2.8 per cent in July on an annual basis, following a 3.2 per cent decline in June.

While a temporary trade truce with the United States has partially shielded Chinese manufacturers from rising tariffs, domestic profits are being eroded as demand shrivels. Support from the central government was front loaded at the start of 2025, but its effects are now waning. Factories benefited from export opportunities early in the year, yet weak consumption at home and ongoing global risks are now acting as a drag on growth.

Beijing has reiterated pledges to bolster domestic consumption in an effort to achieve its growth target of around 5 per cent for 2025. However, economists are forecasting a slowdown as GDP growth is expected to slip to 4.5 per cent in the third quarter and 4 per cent in the last quarter of the year. With job security concerns and trade headwinds weighing on household sentiment, the government may find it increasingly challenging to encourage spending and reach its economic objectives.