China’s Economic Slowdown Sparks Hopes for Monetary Easing

Third-Quarter Growth Slows Below Beijing Targets

Economic expansion in China slipped further away from official targets at the beginning of the third quarter, driven by softening domestic demand. According to Hui Shan, chief China economist at Goldman Sachs, gross domestic product early in the quarter tracked at about 4 per cent compared to the same period a year earlier, dropping from 4.3 per cent in the preceding three months.

The slowdown follows official data released for July, which showed industrial output, retail consumption, and fixed-asset investment all missing consensus forecasts. Hui noted in a client report that the July deceleration carries more weight than previous dips because it stems from a lower starting baseline and affects sectors that previously demonstrated resilience.

“Our conversations with traders and investors suggest that market expectations of monetary policy easing increased somewhat,” Hui stated regarding the downbeat market sentiment.

Diverging Forecasts Among Global Financial Institutions

Major investment banks have adjusted their macroeconomic models to reflect the deepening mid-year slowdown, though projections for policy interventions vary across institutions.

• Goldman Sachs: Estimates early third-quarter GDP growth at approximately 4 per cent, down from 4.3 per cent in the second quarter.
• Macquarie Group: Places monthly GDP growth tracking at roughly 4.2 per cent based on July activity indicators.
• BNP Paribas: Estimates the expansion at 4.1 per cent, trailing the rate required in the second half of the year to hit official annual targets by 0.2 percentage points.

Economists at BNP Paribas, led by Jacqueline Rong, warned in a research note that if GDP growth stays at or below 4 per cent through August and September despite broader fiscal efforts, the government’s annual growth target will face severe risk. In that scenario, BNP Paribas expects policymakers to roll out fresh stimulus measures in late September or early October.

Policy Debate Over Stimulus and Easing Measures

Despite mounting pressure from financial markets to accelerate stimulus deployment, Beijing officials have primarily proposed incremental steps rather than aggressive monetary intervention. Premier Li Qiang urged the government during an August 17 cabinet meeting to ramp up supportive measures and strive to achieve annual economic and social development targets. Subsequent statements from officials indicated that authorities are considering additional support for domestic businesses and consumers later this year, including loan subsidies and expanded financing assistance.

Prior to the latest economic data, many economists had scaled back expectations for an interest-rate cut in 2026 after rising global oil prices drove up factory-gate inflation. Median estimates from a July Bloomberg poll indicated that the People’s Bank of China (PBOC) would likely keep benchmark policy rates untouched through the remainder of the year and into next. Instead, analysts view a reduction in banks’ reserve requirement ratio (RRR) as a more probable tool to inject liquidity into the financial system during the fourth quarter.

The PBOC has maintained a cautious stance on monetary easing, leaving its benchmark rates and RRR unchanged for over a year. State media outlets have pushed back against short-term pessimism regarding the slowdown. A commentary published in the People’s Daily on August 22 argued that observers should not focus exclusively on headline growth rates or monthly indicators, pointing instead to the quality of technological innovation, industrial upgrading, and long-term economic sustainability.