Weekly Global Economic Update

Week of December 22, 2025

• Chinese economy continues to show signs of weakness
• US job market data indicates weakness
• US retail sales data indicate weakness
• US inflation data offers little useful information
• Three major central banks decide on policy

Chinese economy continues to show signs of weakness

• The Chinese government recently released data for several indicators of economy activity, with the preponderance of data suggesting continued weakening of the Chinese economy, especially with respect to domestic demand. This is important given the current challenges to trade growth that China faces. A spokesman for the government said that “the economy still faces multiple challenges of external instability and uncertainty as well as insufficient effective domestic demand.” He said that boosting domestic demand is a priority of macroeconomic policy. Yet despite more aggressive fiscal and monetary policy over the past year, domestic demand has remained dormant. Let’s look at the details.

The most onerous indicator was fixed asset investment. In the first 11 months of 2025, it fell 2.6% from the previous year, marking the weakest performance since June 2020. In large part, the weakness was driven by an accelerated decline in property investment, which declined 15.9% from a year earlier. This suggests that the troubles in the property market are worsening. Until recently, the weakness in fixed asset investment was mainly due to the decline in property investment. That is no longer true. When property is excluded, investment rose only 0.8% from a year earlier. This included a 1.1% drop in infrastructure investment and a very modest 1.9% increase in manufacturing investment.

The increasing decline in property investment comes as prices of new homes fall further. In November, the price of new homes in China’s 70 largest cities was down 2.4% from a year earlier, the sharpest slowdown since August. Prices were down 2.1% in Beijing, 5.1% in Shanghai, 4.3% in Guangzhou, and 3.7% in Shenzhen. This trend persists despite government efforts to stimulate activity. This has included cutting mortgage interest rates and offering tax relief and subsidies to property developers.

The decline in property values has reduced household wealth and contributed to subdued consumer spending. The government reported that retail sales rose a very modest 1.3% increase in retail sales in November versus a year earlier. This was the slowest increase since December 2022. This was partly due to the end of government subsidies for appliance purchases. Sales of appliances and audio-visual equipment fell 19.4% from a year earlier. In addition, sales of automobiles fell 8.3%. On the other hand, sales of communications equipment rose a strong 20.6%. Overall, however, consumer engagement remains modest. This is likely a challenge for the government, which is attempting to boost domestic demand.

Finally, the Chinese government reported that industrial production was up 4.8% in November versus a year earlier, the slowest growth since August 2024. The manufacturing component was up 4.6% from a year earlier, slower than the 4.9% growth clocked in October. Within manufacturing, 31 of 40 industries experienced growth in November. This included automotive (up 11.9%), computers and communication (up 9.2%), and railway and shipbuilding (up 11.9%). The continued growth of automotive production, along with continued declining sales of automobiles, implies that exports are strong. If not, then there could be excess capacity and declining prices.

Given US tariffs and ongoing trade tensions with other countries, China will need to accelerate domestic demand for growth to remain stable. Current efforts to boost domestic demand have so far been inadequate. One problem might be that, when consumers are given incentives to spend more on a particular category, they wind up spending less on other categories. This suggests the need for structural reforms meant to reduce consumer saving. Indeed, the International Monetary Fund (IMF) recently urged China to accelerate structural reforms. Specifically, the IMF suggested that China take steps to resolve local government debt problems as well as troubles in the property market. In addition, the IMF suggested social reforms meant to quell household savings.