Live Comments

China’s July activity data reinforced widening split between resilient production and weak domestic demand, with all three major readings undershooting expectations. Industrial production slowed from 5.3% to 4.5% y/y, below 4.8% consensus. Manufacturing nevertheless continued to provide support, particularly equipment manufacturing and high-tech manufacturing, which grew 9.7% and 13.8% y/y respectively over first seven months.

Consumption disappointed more clearly. Retail sales growth slowed from 1.0% to just 0.6% y/y in July, well below expectations for 1.6%. Sales rose only 0.06% m/m, while consumer-goods retail sales increased just 1.2% over first seven months. Services consumption performed better, with retail sales of services up 5.0%, but overall household spending remains too weak to provide a convincing domestic growth engine.

Investment delivered biggest downside surprise. Fixed-asset investment deteriorated from -5.7% to -6.7% y/y year-to-date, weaker than -6.0% expected. Real-estate development investment plunged -19.2%, but weakness extended well beyond property: infrastructure investment fell -3.6%, manufacturing investment declined -1.7%, and private investment dropped -9.4%. High-tech investment, up 5.0%, remained one of few pockets of strength.

Taken together, simultaneous misses in production, consumption and investment sharpen China’s central macro imbalance rather than simply pointing to a broad slowdown. Supply-side activity is still holding up better than domestic demand, while investment weakness is spreading beyond property. NBS itself acknowledged that imbalance between strong supply and weak demand remains acute, keeping pressure on policymakers to support household spending and private-sector activity more forcefully.

Data Summary

Key Takeaways

• All three major activity indicators missed expectations, reinforcing evidence that China’s July momentum weakened more than markets anticipated.
• Industrial production slowed from 5.3% to 4.5% y/y, but still held up better than domestic-demand indicators.
• Retail sales growth weakened from 1.0% to just 0.6% y/y, far below 1.6% consensus, highlighting persistent consumer caution.
• Fixed asset investment deteriorated from -5.7% to -6.7% y/y YTD, versus -6.0% expected, with weakness extending beyond property into infrastructure, manufacturing and private investment.
• Real-estate development investment fell -19.2% y/y in first seven months, while private investment declined -9.4%, underscoring continued weakness in traditional domestic growth engines.
• High-tech manufacturing and investment remained relative bright spots, but they were not enough to offset broader demand weakness.
• Overall, July data strengthen “strong supply, weak demand” narrative explicitly acknowledged by NBS, keeping pressure on Beijing to do more to support consumption and private-sector investment.

Full China data release here.

Japan’s economy expanded in Q2, but weaker domestic demand left growth well short of expectations. GDP rose 0.3% q/q, or 1.1% annualized, compared with 2.1% annualized growth in Q1 and consensus for around 2.0%. Result covers first full quarter incorporating impact of Iran war and higher energy costs, yet economy still avoided contraction.

Composition was considerably softer than headline growth suggested. Domestic demand fell -0.2% q/q, with private consumption essentially flat and capital expenditure dropping -1.2%, against expectations for an increase. Private residential investment also declined -0.5%. Weak consumption is particularly relevant for BoJ, which is watching whether wage gains are translating into sustained household demand and domestically generated inflation.

External sector did most of heavy lifting. Net exports added 0.5 percentage point to quarterly growth, as exports rose 0.5% while imports fell -1.5%. Solid US demand for Japanese hybrid vehicles and continued global AI investment supported shipments of semiconductor-related equipment and components. Government consumption also rose 1.6%, while some weakness in private consumption may have reflected one-off shifts toward public spending, including education-related measures.

Flat consumption and falling business investment argue against describing domestic economy as strongly accelerating, but positive headline growth and resilient exports leave BoJ normalization case intact if policymakers view Q2 drags as temporary. Bigger question is whether higher energy and import costs begin squeezing households more visibly in Q3, weakening demand just as BoJ considers faster pace toward tighter policy.

Data Summary

Key Takeaways

• Japan GDP grew 0.3% q/q in Q2, equivalent to 1.1% annualized, undershooting expectations for 0.5% q/q and 2.0% annualized growth.
• Domestic demand contracted 0.2%, making composition notably weaker than positive headline GDP suggests.
• Private consumption stalled after 0.5% growth in Q1, an important weak point as BoJ looks for a durable wage-consumption-inflation cycle.
• Business investment fell 1.2%, substantially weaker than expectations for a 0.4% increase, while residential investment also declined.
• External demand kept economy growing, contributing 0.5 percentage point as exports rose 0.5% and imports fell 1.5%.
• Government consumption accelerated from 0.4% to 1.6%, providing another offset to weak private demand.
• Report complicates rather than overturns September BoJ hike case. Domestic momentum is soft, but positive growth and resilient exports leave normalization path intact if policymakers see Q2 drags as temporary.
• Q3 focus shifts to whether higher energy and import costs squeeze household spending, particularly as some Q2 durable-goods demand may have been temporarily boosted.

Full Japan Q2 GDP release here.

New Zealand’s services sector stayed in expansion in July, although momentum eased slightly. BNZ–BusinessNZ PSI slipped from 50.9 in June to 50.6 in July, marking a second consecutive month above 50 breakeven. Encouragingly, Activity/Sales improved from 49.7 to 50.5, moving into expansion for first time in six months, while Stocks/Inventories strengthened from 50.3 to 51.6.

Details nevertheless point to a recovery that remains narrow. New Orders/Business stayed strongest component despite easing from 53.3 to 52.6, while Employment slipped from 48.8 to 48.5 and Supplier Deliveries fell from 51.2 to 48.5. BusinessNZ said firms remain cautious about hiring, while respondent sentiment was notably weak, with 64% of comments negative amid concerns over living costs, fuel prices, interest rates and election uncertainty.

Overall, July PSI reinforces signs that New Zealand services activity is stabilizing rather than entering a strong rebound. Return of Activity/Sales above 50 is a meaningful improvement, but persistent employment contraction and subdued business sentiment argue against reading two months of headline expansion as broad recovery. For markets, mixed composition provides little reason by itself to overturn last week’s tension between RBNZ’s still-hawkish expected OCR path and sharply lower near-term inflation expectations.

Data Summary

Key Takeaways

• Services remained in expansion for second straight month, with PSI easing only slightly from 50.9 to 50.6.
• Activity/Sales provided strongest sign of improvement, rising from 49.7 to 50.5 and moving above 50 for first time in six months.
• Recovery remains narrow, as Employment stayed in contraction at 48.5 and Supplier Deliveries dropped sharply below 50.
• New Orders remained relatively firm at 52.6, suggesting demand has not rolled over despite cautious business sentiment.
• 64% of respondent comments were negative, with cost-of-living pressures, fuel prices, higher interest rates and election uncertainty weighing on confidence.

Full NZ BNZ PSI release here.