China’s economic recovery lost momentum in the second quarter of 2026, with annual GDP growth slowing to its weakest pace since late 2022 as weak domestic demand, a prolonged property slump and the impact of the global oil shock weighed on the world’s second-largest economy.
China’s gross domestic product (GDP) grew 4.3 per cent in the April-June quarter from a year earlier, official data released on Wednesday showed. The figure missed analysts’ expectations of 4.5 per cent growth in a Reuters poll and slowed sharply from the 5 per cent expansion recorded in the first quarter.
The second-quarter growth rate was the weakest since the fourth quarter of 2022, when China’s economy was struggling with disruptions caused by the Covid-19 pandemic.
On a quarterly basis, GDP expanded 0.9 per cent in the second quarter, in line with market expectations but below the 1.3 per cent growth recorded in the January-March period.
The latest data points to an uneven recovery in China, where strong factory output and exports have failed to offset weakness in consumer spending and investment.
Manufacturing activity has remained resilient, supported by demand for artificial intelligence-related products and high-tech exports. However, households and businesses have remained cautious amid weak confidence, a prolonged property market crisis and the fallout from higher energy costs linked to the Iran war.
Industrial output strengthens, consumption improves
Separate data released alongside GDP figures showed some signs of improvement in consumer activity in June.
Retail sales rose 1 per cent year-on-year in June, recovering from a 0.6 per cent decline in May. The increase marked the fastest pace of retail growth in three months and exceeded expectations, with analysts having forecast a 0.1 per cent decline.
Industrial production also remained a bright spot for the economy. Factory output increased 5.3 per cent in June from a year earlier, accelerating from 4.5 per cent growth in May and beating the market forecast of 4.7 per cent.
China’s manufacturing sector has benefited from strong exports in advanced industries, including artificial intelligence, electric vehicles and other technology-related sectors.
However, investment remained a major drag on growth. Fixed-asset investment declined 5.7 per cent during the first six months of 2026, compared with expectations of a 4.9 per cent fall. The decline also widened from a 4.1 per cent contraction recorded in the January-May period.
Property crisis continues to hurt growth
China’s struggling real estate sector remained one of the biggest challenges for the economy.
Property investment fell 18 per cent in the first half of 2026 from a year earlier, worsening from a 16.2 per cent decline in the first five months of the year.
New home prices continued to fall in June, although the pace of decline moderated slightly. While some major cities have seen signs of stabilisation following policy support, weak nationwide demand continues to weigh on the housing market.
The prolonged property downturn has affected household wealth, reduced consumer confidence and weakened investment by developers and local governments.