China GDP slows to 4.3%, missing target for first time since Covid

China's economy grew at its weakest pace in more than three years, slipping below the official target range for the first time since the pandemic.

China's gross domestic product expanded 4.3% in the second quarter from a year earlier, the National Bureau of Statistics said Wednesday, undershooting the 4.5% median estimate in a Bloomberg survey of economists. The reading marked the slowest quarterly expansion since the Covid lockdowns of 2022 and followed 5% growth in the first three months of the year.

"The GDP data confirms the recovery is losing momentum faster than policymakers anticipated, putting pressure on Beijing to deliver more aggressive stimulus," said Kevin Ip, China macro analyst at Edgen. "The property sector remains a significant drag, while external demand is being disrupted by instability in the Middle East."

The second-quarter result fell below the bottom of Beijing's 4.5% to 5% annual growth target, marking the first time China has missed its official goal since the pandemic-era disruptions of 2022. The slowdown was driven by a deepening property investment slump, weak consumer spending, and headwinds from global trade disruptions linked to turmoil in Iran, according to reports.

On a quarter-over-quarter basis, GDP grew 0.6% in the April-to-June period, compared with 1.5% in the first quarter, underscoring the sharp deceleration in momentum. Industrial production rose 5.3% in June from a year earlier, missing the 5.6% forecast, while retail sales growth slowed to 3.2% from 3.7% in May, signaling that consumer demand remains tepid despite government efforts to boost spending.

Fixed-asset investment expanded 3.8% in the first half from a year earlier, with property investment contracting 9.5% over the same period, extending a decline that began in 2022. The property sector, which once accounted for about a quarter of China's economy, continues to weigh on growth as developer defaults persist and homebuyer confidence remains fragile.

Policy Response in Focus

The GDP miss intensifies pressure on Chinese policymakers to ramp up stimulus measures. The People's Bank of China has kept its one-year loan prime rate at 3.1% and the five-year rate at 3.6%, near record lows, while the Ministry of Finance has accelerated local government bond issuance to fund infrastructure projects. Market expectations are building for a cut to the reserve requirement ratio in the coming months, which would free up liquidity for banks to lend.

The last time China's economy grew below the official target range was in 2022, when GDP expanded 3% amid strict Covid lockdowns. The government responded with a series of stimulus measures, including multiple RRR cuts and increased infrastructure spending, that helped lift growth back above 5% by early 2023. The current slowdown, however, differs from that episode in that it is structural rather than pandemic-driven, suggesting a more prolonged recovery may be needed.

Cross-Asset Implications

The weaker-than-expected GDP reading weighed on Chinese equities and the yuan in early trading. The CSI 300 Index fell as much as 1.2%, while the offshore yuan weakened past 7.35 per dollar, approaching the weakest level since 2023. Copper futures on the London Metal Exchange declined 1.8% on concerns about Chinese demand, which accounts for more than half of global refined copper consumption.

The data also raises questions about the global growth outlook. China is the world's second-largest economy and a key driver of demand for commodities from iron ore to crude oil. A sustained slowdown could ripple through emerging markets and weigh on export-dependent economies across Asia, from South Korea to Vietnam. The S&P 500 futures edged lower in Asian trading as investors assessed the implications for multinational companies with significant China exposure.

This article is for informational purposes only and does not constitute investment advice.