China’s Q2 GDP grew at 5.2%, beating forecasts, thanks to strong exports and despite persistently weak domestic demand. Still, the resilience of the Chinese economy could be tested in H2 as global uncertainty persists.

China’s GDP expanded 5.2% y-o-y during the April–June period, after a gain of 5.4% in Q1.

The economy held up better than expected, boosted by front-loaded exports ahead of the implementation of US tariffs and as a result of China’s diversification of its exports globally.

It also benefited from the fragile truce reached with the USA on the trade front. June exports rose 5.8% y-o-y, vs 4.8% in May and 5.1% in H1, with exports to Asia and Europe more than offsetting lower shipments to the USA.  

However, the numbers continue to highlight the discrepancy between elevated manufacturing activity and weak domestic consumption. While June industrial output rose 6.8% y-o-y, retail sales growth slowed to 4.8% (from 6.4% in May), the lowest growth observed since the January–February period.

Consumption contributed to just over 52% of economic growth in Q2, down from more than 60% a year ago.  

Furthermore, deflationary pressures remain. China’s producer prices shrank 3.6% y-o-y in June 2025, vs a 3.3% drop in May, the 33rd consecutive month of producer deflation. China’s June CPI rose by 0.1% y-o-y, reversing the 0.1% decline observed over the previous three months; however, this did not alter the broader deflationary trend.

When considered together, these numbers highlight the weakness of domestic consumption but also suggest excess manufacturing output.  

The property market remains depressed, with new home prices dropping 3.2% y-o-y in June. Although the rate of price declines is decelerating, the decline in June marked the 24th consecutive month of contraction. Fixed-asset investment rose 2.8% from January to June, while property investment shrank 11.2% during the same period.  

Given the latest GDP data and an average H1 growth of 5.3%, we have increased our China 2025 GDP growth forecast from 4.5% to 4.9%. However, we also believe that the markets have shown significant complacency in recent weeks, with all positive news priced in.  

Headwinds persist for both China and the global economy, with erratic US policies being the driving factor of uncertainty. Therefore, we still expect a softer H2, which would also apply to commodity demand across the board.  

China’s economy has been more resilient than expected based on the latest set of numbers. However, relying only on exports in the current geopolitical environment is hazardous, and this resilience is likely to be tested sooner rather than later.