China: Consumption up, investment down – Standard Chartered

Retail sales growth accelerated to a 17-month high in May on front-loaded policy support. Better sentiment after US-China tariff truce supported steady export and IP growth. Property sector continued to contract, dragging down headline FAI; more support is needed, Standard Chartered's economists report.

Household demand recovery continued in May

"Real activity data in May suggests household consumption picked up further and production activity remained resilient partly due to the front-loading of fiscal stimulus and export orders. Industrial production (IP) and retail sales growth accelerated to 0.61% and 0.93% m/m, respectively. Export growth slowed but remained steady, while imports declined faster y/y, resulting in a larger trade surplus in May. In addition, services production index growth picked up to 6.2% y/y. We estimate that monthly GDP growth stayed above 5% y/y. We therefore see upside risk to our Q2 GDP growth forecast of 4.7% y/y."

"Meanwhile, we remain cautious on the H2 growth outlook. The housing sector remains a significant drag on the economy: property investment contracted 10.7% y/y in 5M-2025, extending 2024’s double-digit decline; home sales, home prices and new starts all fell faster in May relative to April. More policy support is needed to stabilise the market, in our view. Economic outperformance YTD has benefited from the front-loading of fiscal stimulus, including the consumer goods trade-in programme, the effects of which we expect to fade in H2. Externally, the ongoing global trade war will likely lead to slower global growth and demand. Our baseline assumes that the current US tariffs on China will be maintained following the 90-day tariff truce reached in Geneva last month, with export orders normalising from the front-loading effect."