Growth pressure mounts in China as domestic demand and investments weaken

In China, the world's second-largest economy, the weakening of domestic demand and investments deepened in August. According to the latest data released, retail sales and fixed-asset investments lagged behind expectations, while the unemployment rate rose to 5.3%, increasing pressure on growth targets.

Retail Sales and Investments Decline

Retail sales in China increased by 0.4% year-on-year in August, but remained below market expectations and recorded a slowdown compared to the previous month.

During the same period, fixed-asset investments fell by 7.2%, displaying a weaker performance than expected and deepening the loss of momentum in economic activity.

Unemployment Rate Exceeds Expectations

The country's unemployment rate for August was announced as 5.3%, coming in above market expectations.

Although industrial production recorded a 5.2% year-on-year increase, it was observed that the weakness in the domestic demand components of growth persisted.

Pressure on Growth Targets Increases

It is assessed that the slowdown in consumption and investments could make it more difficult for the Beijing administration to achieve its annual growth targets.

Expectations have strengthened that the Chinese government will take further fiscal and monetary support measures to stimulate the economy.

Downward Forecasts from ING Group

ING Group Chief Economist for China Lynn Song emphasized that consumption and investments remained weak due to low domestic demand.

Song stated that growth forecasts of 4.5% for the third quarter and 4.6% for the year 2026 appear to be under downward pressure.

Widening Divergence Between Sectors

It was stated that strong external demand supports industrial activities, and high-tech sectors focused on external demand continue to perform strongly.

Conversely, it was noted that a weak outlook continues to be maintained across many categories within the economy.

Sharp Drop in Automobile Sales

Automobile sales, one of the major factors behind the slowdown in retail sales, fell by 18.5% year-on-year in August.

While furniture sales contracted by 7.9%, gold and jewelry sales also decreased by 17.5%, hitting the lowest level in the last four months.