China's Economic Slowdown Deepens: July Factory Output at 4.5% YoY, Retail Sales Stagnate

China’s latest data reveals a persistent slowdown, with factory output rising 4.5% YoY and retail sales only growing 0.6%, underscoring a potential extended deceleration.

July Production and Retail Figures

■Factory output increased 4.5% YoY, falling short of the 5.3% forecast.

■Retail sales grew 0.6%, a decline from the 1.0% rise in June.

■Expected growth was 4.8% for production and 1.5% for retail.

Drivers: Weather and External Factors

■Extreme heat and heavy rainfall disrupted supply chains.

■Rising uncertainty in the external environment dampened export demand.

■AI-capex investments provided a modest boost to manufacturing efficiency.

Policy Response: Tax and Spending Measures

■Premier Li Qiang is pushing for tax exemptions and increased government spending to stimulate activity.

■Fiscal easing is aimed at offsetting weak domestic demand.

■The government stresses the importance of stabilizing external demand.

Outlook: Growth and AI Investment

■Analysts anticipate a modest uptick in growth later this year.

■AI infrastructure investments are expected to lift production efficiency.

■A 4.3% annual growth target is projected for the end of 2026.

Markets will view this as a “slowdown” signal within the Asia‑Pacific risk profile, given China’s large consumer base and external demand uncertainties. Yet, fiscal and trade‑support strategies could dampen short‑term volatility, while AI and infrastructure investments may ultimately reinvigorate growth.