China’s economy lost momentum at the start of the second half, with industrial output and retail sales slowing as extreme weather disruptions and persistently weak domestic demand renew pressure on policymakers to step up stimulus. Factory output grew 4.5% from a year earlier last month, compared with 5.3% in June, data from the National Bureau of Statistics (NBS) showed on Monday
The industrial activity moderated in Jul-26, with industrial production growth slowing to +4.5%yoy (Jun-26: +5.3%yoy), below +4.8%yoy predicted by market expectations. The moderation partly reflected disruptions from extreme weather and typhoons, although manufacturing activity continued to receive support from high-tech production and resilient external demand.
Domestic spending also softened as retail sales growth eased to +0.6%yoy (Jun-26: +1.0%yoy), below the consensus estimate of +1.5%yoy. The slower growth suggests consumer confidence and discretionary spending remain subdued despite measures to encourage consumption.
Investment conditions weakened further, with fixed-asset investment contracting by -6.7%yoy in Jan-Jul 2026 (Jan-Jun 2026: -5.7%yoy). The prolonged property downturn remained a major drag, with new home prices falling by -3.2%yoy in Jul-26 and property investment, sales and new construction remaining weak.
Labour-market conditions also showed some softening in Jul-26, with the urban unemployment rate rising to 5.2% from a one-year low of 5.0% in Jun-26, slightly above the market expectation of 5.1%. The increase was partly seasonal as new graduates entered the labour market, while the migrant-worker unemployment rate also rose to 5.2% (Jun-26: 4.9%). Nevertheless, with the unemployment rate averaging around 5.2% in 7MCY26, the reading is still below the government’s target of 5.5% for this year.
Overall, the latest data update point to China’s economy losing momentum, particularly domestic consumption and investment activities, despite continued support from exports and technology-related manufacturing. With 2Q26 GDP growth already moderating to +4.3%yoy, MBSB in its research note today said it expect s the government would step up policy support to promote domestic consumption, employment, private investment and stabilise the property sector.
