China's economy expanded at its slowest pace since late 2022 in the second quarter, highlighting mounting challenges from weak domestic demand and external shocks despite resilient exports and industrial production.
According to official data released on Wednesday, China's gross domestic product (GDP) grew 4.3% year-on-year in the April-June quarter, below the 4.5% growth forecast by analysts polled by Reuters. The reading also marked a slowdown from the 5.0% expansion recorded in the first quarter.
Reuters attributed the weaker-than-expected performance to sluggish consumer demand and the impact of the oil price shock linked to the Iran war, which offset strength in manufacturing activity and exports supported by artificial intelligence-related demand.
The second-quarter growth rate was China's weakest since the fourth quarter of 2022, when the country was dealing with disruptions from the COVID-19 pandemic.
On a sequential basis, the economy expanded 0.9% in the April-June period, matching analysts' expectations and slowing from the 1.3% growth recorded in the previous quarter.
The latest data underscores the challenges facing Chinese policymakers as they attempt to revive domestic consumption and private investment while maintaining economic momentum. Reuters reported that a widening supply-and-demand imbalance has emerged, with AI-driven export growth boosting industrial output even as household spending and business investment remain subdued.
The weaker GDP figures could weigh on investor sentiment across Asian markets, particularly for companies with significant exposure to China's economy. Shares of metal producers, mining companies, luxury goods firms and industrial exporters may remain under pressure if concerns over slowing Chinese demand intensify.
For Indian markets, the data could keep stocks in the metals, mining and commodity sectors in focus, as China is the world's largest consumer of industrial metals. Companies with sizeable export exposure to China or those dependent on Chinese demand may also see increased volatility.
At the same time, expectations that Beijing could introduce additional stimulus measures to support growth may limit downside in Chinese and regional equities, especially infrastructure, construction and policy-sensitive sectors.
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