China’s economy likely expanded faster than expected in the second quarter of 2025, reducing the immediate need for aggressive policy stimulus. According to a Bloomberg survey, gross domestic product (GDP) rose by 5.1% year-on-year between April and June, slightly lower than Q1’s 5.4% but still above the government’s full-year China Q2 GDP growth target of “around 5%”.
This strong first-half performance, bringing average growth to approximately 5.3%, suggests Beijing may hold off on new easing measures in the near term. ForexLive echoed the same outlook, citing improved external demand and continued fiscal support as key drivers.
However, economists from Citi and Nomura believe moderate stimulus is still likely later this year. Their forecasts include a 10 basis-point rate cut and a 50 basis-point reduction in the reserve requirement ratio (RRR) for banks to help cushion any slowdown in domestic consumption.
Exports Drive Momentum Amid Sluggish Domestic Demand
The surprising strength in exports was a major contributor to China Q2 GDP growth. China’s overseas shipments surged 5.8% in June, exceeding analysts’ expectations. Imports rose 1.1%, and the monthly trade surplus reached around $115 billion, reflecting robust external demand.
This export boom was partially driven by a temporary reprieve in the U.S.-China tariff dispute, leading to a front-loading of shipments. Exports to the European Union climbed 7.9% in the first half, while those to ASEAN nations jumped 14.3%, fueling U.S. concerns over transshipment practices.
Despite gains in trade, domestic demand continues to lag. Consumer spending remains weak, weighed down by deflationary pressures and a prolonged property market downturn. Economists warn that without stronger domestic consumption, China’s reliance on exports could become a structural vulnerability.
Structural Weaknesses Prompt Cautious Optimism
While Q2 growth offers short-term relief, the broader outlook is more cautious. A Reuters poll projects a continued slowdown in the second half of 2025, with China Q2 GDP growth expected to ease to 4.5% in Q3 and 4.0% in Q4. Full-year growth is now forecast at 4.6%, below the government’s target.
China’s economy is also battling persistent deflation, with nine straight quarters of falling GDP deflator readings. Policymakers have rolled out infrastructure projects, consumer subsidies, and liquidity infusions, but these measures have yet to fully revive domestic confidence.
All eyes are now on the upcoming Politburo meeting later this July, where new policy directions may be announced. Analysts expect a stronger push toward household consumption and supply-side reforms to tackle excess industrial capacity and improve long-term resilience.
China Q2 GDP growth of 5.1% exceeded expectations, largely powered by booming exports. While this reduces short-term pressure for stimulus, ongoing domestic challenges—such as deflation, weak consumer demand, and a troubled property sector—suggest that cautious policy support will still be needed in the months ahead.
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