China's economic performance in July 2024 has sparked significant concerns, as new bank loans plummeted to a 15-year low, and key indicators, such as export growth and factory activity, showed signs of weakening. With domestic demand remaining sluggish and the economic recovery fragile, economists are increasingly skeptical about China meeting its 5% growth target for the year, suggesting the need for more robust stimulus measures.

The string of disappointing data has dimmed expectations for China's economy in the second half of 2024, underscoring the need for more comprehensive growth-boosting strategies beyond temporary fixes. Calls for stronger measures have intensified after the anticipated post-pandemic recovery in 2023 failed to materialize. Despite these challenges, the government continues to aim for around 5% economic growth this year.

The recent data paints a bleak picture for the start of the second half. On Tuesday, central bank data revealed that new bank loans in July dropped to their lowest level in 15 years. Other critical metrics showed a slowdown in export growth and a decline in factory activity as manufacturers struggled with weak domestic demand. The economy had already underperformed in the second quarter, growing by 4.7% year-on-year, as cautious consumers were hesitant to spend, and trade relations with key markets became increasingly strained. This suggests a prolonged period of economic sluggishness is becoming more likely.

Xu Tianchen, a senior economist at the Economist Intelligence Unit (EIU), noted that market consensus might shift towards the lower end of the "around 5%" growth target, given the July slowdown and the apparent lack of a strong economic support plan. The EIU has maintained its growth forecast at 4.7% since March.

On Thursday, China is set to release a series of activity data. Economists surveyed by Reuters expect retail sales to have grown by 2.6% year-on-year in July, up from 2.0% in June. However, industrial output is anticipated to have slowed, and investment growth is expected to have plateaued. Additionally, officials will release the latest data on new home prices, which experienced their sharpest decline in nine years in June, despite numerous support measures aimed at attracting buyers and addressing the ongoing property crisis.

Credit data for July revealed a contraction of 210 billion yuan ($29.37 billion) in household loans, primarily mortgages, compared to a 570.9 billion yuan increase in June. One major factor behind the lack of consumer spending is that 70% of household wealth in China is tied up in real estate, a sector that has historically been a significant growth driver.

Exports, one of the few bright spots this year, have not been enough to ignite a broader economic recovery. Manufacturers have had to cut prices to attract overseas buyers amid weak domestic demand. There are also signs that global demand is slowing, with the official factory managers' survey for July showing a decline in export orders for the third consecutive month.

Alicia Garcia Herrero, chief economist for the Asia-Pacific at Natixis, emphasized that much depends on exports. She noted that if exports continue to decline, growth projections for 2024 may need to be revised downwards, possibly to around 4.2%.

In response to these challenges, many economists expect further interest rate cuts in China later this year, especially if the U.S. Federal Reserve begins reducing borrowing costs in September. However, with domestic demand so weak and the economic outlook uncertain, both households and businesses are hesitant to borrow. Xu from the EIU mentioned that there is a strong possibility that officials may soon announce a clearer plan to stimulate domestic consumption, given their recent concerns about weak domestic demand.