Authors: Ellen Zhang and Kevin Yao

BEIJING (Reuters) – China’s economy likely grew 5.1% in the second quarter from a year earlier, slowing after a strong start in the first three months due to weak consumer demand, keeping alive expectations that Beijing will have to roll out more stimulus.

While that level of growth would allow China to meet its full-year target of around 5%, policymakers still have to cope with a prolonged housing slump, weak domestic demand, a weakening yuan and trade disputes with the West.

Gross domestic product (GDP) in the world’s second-largest economy is set to grow 5.0% year-on-year in 2024, according to the median forecast of 82 economists surveyed by Reuters. Analysts predict a slower 4.5% rise in 2025.

Analysts say a further slowdown in the second half of 2024 could prompt policymakers to increase economic support, which is currently based mainly on foreign demand.

Investors are watching a meeting of top party leaders next week to learn what strategies they can use to address challenges beyond industrial modernization.

Policy advisers also say China could implement tax and fiscal reforms to help indebted local governments raise more tax revenue and ease pressure on local finances.

Growth in the second quarter is forecast to be slower than the 5.3% increase in the first quarter and the weakest since the third quarter of 2023.

A Reuters poll predicts GDP growth will slow further to 4.8% and 4.7% in the third and fourth quarters, respectively.

“Despite the ongoing housing crisis, China’s economy breathed a sigh of relief in the first half of the year thanks to strong exports, which in turn were driven by some countervailing forces and policy measures related to real estate,” Ting Lu, Nomura’s chief China economist, said in a note on Wednesday.

However, it expects year-on-year GDP growth could slow significantly to 4.2% in the second half of the year from around 5.0% in the first half, “unless Beijing increases stimulus by significantly accelerating injections of funds to complete unfinished, pre-sold homes.”

Authorities in May allowed local state-owned enterprises to buy unsold completed homes, and the central bank released a 300 billion yuan ($41.23 billion) loan for affordable housing. Analysts say markets now need to be more patient about additional measures to support housing.

Official data released on Wednesday showed China’s consumer inflation in June came in below expectations, pointing to persistent deflationary risks.

Analysts polled by Reuters estimate that consumer prices in China will rise 0.6% this year, well below the government’s target of about 3%, and will rise 1.5% in 2025.

The story continues

The government will release second-quarter GDP data and retail sales, industrial production and investment data for June at 02:00 GMT on 15 July.

MORE SUPPORT EXPECTED

To counter weak domestic demand and a slump in the real estate market, China has increased infrastructure investment and poured resources into high-tech production.

Central bank Governor Pan Gongsheng pledged last month to stick to a supportive monetary policy stance and said the bank would flexibly use policy tools, including interest rates and reserve requirements, to support economic development.

However, the central bank is likely to be cautious about cutting interest rates further, as aggressive monetary easing could trigger more capital outflows from struggling Chinese financial markets and put pressure on the yuan, which has fallen to a nearly eight-month low against the dollar.

It could also hurt banks already struggling with margin pressure, leading to pay cuts for employees. Analysts say more layoffs and pay cuts would exacerbate deflationary risks.

Analysts polled by Reuters expect a 10 basis point cut in China’s annual mortgage rate and a 25 basis point cut in banks’ reserve requirement ratio in the third quarter.

(To read other articles in Reuters’ suite of polls on the world’s long-term economic outlook:)

(1 dollar = 7.2755 Chinese yuan)

(Poll by Rahul Trivedi, Devayani Sathyan and Susobhan Sarkar in Bengaluru and Jing Wang in Shanghai; reporting by Ellen Zhang and Kevin Yao; editing by Sam Holmes)