China: Domestic weakness calls for measured fiscal support - Commerzbank

Volkmar Baur at Commerzbank assesses that China’s Gross Domestic Product (GDP) growth of 4.3% year-on-year in Q2 2026 fell short of the government’s 4.5–5% target, with real estate weakness and cautious fiscal policy weighing on demand. However, net exports contributed significantly to growth, and modest fiscal expansion is expected to bring official growth back into the target range.

Domestic weakness versus external support

"According to official statistics, the Chinese economy grew by 4.3% year-on-year in the second quarter. Although this growth rate was lower than the government’s target of 4.5–5%, the economic performance was undermined by the US-Iran conflict, particularly in April and May."

"In addition, the Chinese government has been slow to expand its fiscal expenditure, which shows in the fixed asset investment (FAI) numbers."

"On the bright(er) side, the monthly data on retail sales, industrial production and fixed-asset investment did in June point to a slight recovery."

"This might have been the reason why the Politburo in its July meeting did not see an urgent need to change course in economic policy."

"This will help at the margin and should be enough to get the official growth numbers back into the government's target range."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)