Global Weekly Economic Update: Insights from Deloitte
Date: Week of August 18, 2025
Source: Deloitte Global Economics Research Center
Overview
This week’s global economic update from Deloitte Insights presents a comprehensive analysis of key economic developments around the world. Deloitte’s team of economists, led by Chief Global Economist Ira Kalish, highlights important trends, challenges, and policy shifts, with a particular focus on China’s economic landscape, the evolving U.S.-China relations, and monetary policy debates in the United States.
China’s Economy Faces Significant Challenges
China’s economic performance in July 2025 reflects persistent difficulties exacerbated by ongoing trade restrictions imposed by the United States. The country continues to grapple with the fallout from a slowing residential property market, coupled with subdued consumer demand and restrained business investment.
Retail Sales Slow Amid Mixed Consumer Trends
Retail sales in China increased by a modest 3.7% compared to the previous year, marking the slowest growth since December 2024, and declined by 0.14% from the month prior. While sales of household appliances and audio-visual equipment surged by 28.7% year-over-year, supported by government trade-in subsidies, the sustainability of this boost is uncertain as funding for these programs diminishes.
Conversely, automobile sales declined 1.5% year-over-year, signaling weakness in a key consumer segment. In response to subdued consumer activity, senior Chinese officials are advocating for easing property market restrictions to stimulate spending among affluent households, under the belief that increased spending from this group can enhance overall economic demand, employment, and production. Some cities have already begun implementing these policy relaxations.
Industrial Production and Investment Activity
Industrial output rose 5.7% in July compared to a year earlier, the slowest pace since late 2024, with government authorities attributing this in part to adverse weather events like extreme heat and flooding. Manufacturing growth remained relatively strong at 7.4%, driven by sectors such as automotive (8.5%), computers and communications equipment (10.2%), and capital-intensive industries like railway and shipbuilding (13.7%).
Despite these manufacturing gains, the sector appears increasingly reliant on exports, even as shipments to the United States have declined due to trade restrictions, raising concerns about potential overcapacity and deflationary pressures.
Fixed asset investment showed a marginal increase of 1.6% over the first seven months of 2025 but was hampered by a 12% drop in property-related investments. New home sales fell 4% year-over-year, underlining ongoing challenges in the real estate market. However, infrastructure and manufacturing investments recorded modest increases of 3.2% and 6.2%, respectively. Excluding property, overall fixed asset investment grew by 5.3%, though on a month-to-month basis, investment contracted by 0.6% from June to July.
Inflation Trends
China’s consumer price index remained flat in July compared to the prior year, with slight monthly inflation of 0.4%. Food prices declined by 1.6% annually, while other sectors experienced modest price increases. Core inflation – which excludes volatile food and energy costs – edged up by just 0.8%, signaling subdued underlying inflation.
Producer prices continued to fall, declining 3.6% year-over-year for a second consecutive month, reflecting excess industrial capacity and weakening demand pressures.
Shifting U.S. Policy Toward China
The United States’ approach to China remains in flux, particularly concerning technology exports and trade relations.
Export Controls Evolve
Previously, U.S. policy under both the Trump (first administration) and Biden administrations focused on restricting exports of advanced technologies, especially semiconductor-related equipment, intended to limit China’s military capabilities and technological advancement. This policy enjoyed broad bipartisan support.
However, the current Trump administration (second term) is adopting a different stance by allowing some high-tech exports to China, provided companies pay a fee to the U.S. government. While the administration claims the technology involved is "downgraded" to prevent access to the most advanced capabilities, critics argue that this could still enhance China’s military and AI development, potentially undermining U.S. national security. Congressional voices have expressed concern that relaxing export controls could set a dangerous precedent.
The administration defends the policy shift as a strategy to bolster U.S. exports to China.
Trade Tariffs and Investment Flows
Efforts by the U.S. to encourage companies to relocate operations from China to neighboring Asian countries face challenges, as high U.S. tariffs on several East Asian nations inadvertently strengthen those countries’ economic and political ties with China.
Meanwhile, the tariffs on China have significantly curtailed foreign direct investment (FDI) inflows. In the second quarter of 2025, China’s FDI stood at just $8.7 billion – less than 10% of peak levels seen in early 2022 – underscoring the impact of intensified trade frictions and policy uncertainty on investment decisions.
Economic Outlook and Broader Trends
Deloitte’s ongoing research and analysis provide critical insights into broader global economic themes, including:
- The complex dynamics of fiscal and monetary policies as countries strive to balance growth with inflation control.
- Shifts in labor markets amid changing workforce trends.
- The intersection of environmental, social, and governance (ESG) considerations with economic strategy.
- Cross-industry innovation and adaptation in technology, media, telecommunications, healthcare, and financial services sectors.
About Deloitte Insights
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Contact Information
Ira Kalish
Chief Global Economist | Deloitte Touche Tohmatsu Ltd.
Email: [email protected]
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