Global Weekly Economic Update: Key Insights from Deloitte Insights
As the week of August 18, 2025 unfolds, Deloitte Insights offers an in-depth analysis of current global economic developments. Through its dedicated team of economists, including Chief Global Economist Ira Kalish, Deloitte provides valuable perspectives on economic trends shaping the business landscape worldwide. This week’s update highlights critical issues surrounding China’s economy, shifts in U.S. trade policies, and ongoing debates about Federal Reserve strategies.
China’s Economy Faces Significant Challenges
Economic data from July 2025 paint a picture of mounting difficulties for China’s economy. Several factors, including U.S.-imposed trade restrictions and a persistent residential property slowdown, have contributed to subdued growth across key economic sectors.
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Retail Sales: Year-over-year retail sales growth decelerated to 3.7%, marking the slowest pace since December 2024, with a slight monthly decline of 0.14%. While household appliances and audio-visual equipment sales surged by 28.7%—largely thanks to expiring government subsidies—the outlook for consumer spending is cautious. Automobile sales dropped 1.5% compared to the previous year.
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Policy Responses: To invigorate consumer spending, a senior Chinese official proposed easing restrictions on property markets and other areas, emphasizing the importance of encouraging affluent households to increase expenditure. Some cities have already implemented policies to relax property market controls in hopes of stimulating activity.
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Industrial Production: Industrial output expanded by 5.7% year-over-year in July, the slowest rate since November 2024. Manufacturing remained robust with a 7.4% increase, particularly in automotive (+8.5%), computers and communications equipment (+10.2%), railway, and shipbuilding (+13.7%). However, constrained by extreme weather events—like heatwaves and flooding—utility and mining sectors grew modestly at 3.3% and 5%, respectively. Notably, while overall exports continued strongly, shipments to the U.S. sharply declined, raising concerns about overcapacity and deflationary pressures.
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Fixed Asset Investment: From January to July 2025, fixed asset investment in China rose by only 1.6%. The property sector sustained a steep 12% investment decline, evidencing ongoing hardships. Nevertheless, infrastructure and manufacturing investments increased by 3.2% and 6.2%, respectively. When excluding property, fixed asset investment was up 5.3%. On a monthly basis, investment slipped 0.6% from June to July.
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Inflation Dynamics: Inflation remained virtually stagnant at 0% year-over-year in July, with prices climbing 0.4% month-to-month. Food prices fell 1.6% annually, while core inflation—excluding volatile food and energy components—edged up by just 0.8%. Producer prices experienced a 3.6% decline, consistent with the previous month and reflective of excess production capacity amid weakened demand.
Together, these indicators suggest China’s economic growth faces hurdles related to subdued consumer demand, a shaky real estate sector, and uncertain international trade relations, particularly with the United States. Concerns about employment stability within export-dependent industries also persist.
U.S. Adjusts Strategy Toward China
U.S. trade policy toward China is entering a new phase under the second Trump Administration. Previously, both the Trump and Biden Administrations enforced stringent export controls on advanced technologies—especially semiconductor equipment—to curb China’s military technological advancements. These measures enjoyed bipartisan support.
Currently, however, there is a shift: rather than imposing outright bans, the administration permits certain high-tech exports to China contingent on companies paying fees to the U.S. government. Although officials claim that the exported technologies have been deliberately downgraded to restrict the acquisition of cutting-edge capabilities, critics express concern that this approach may still facilitate enhancements to China’s military, particularly in artificial intelligence. A Republican House committee chair emphasized that strict export controls are essential to U.S. national security and cautioned against setting a permissive precedent.
The new policy is defended as a means to increase U.S. exports, but broader trade dynamics complicate the picture. High tariffs imposed by the U.S. on various Asian countries—ostensibly to encourage manufacturers to reduce dependency on China—are instead strengthening these nations’ economic and political ties with China. Conversely, tariffs on China are contributing to a sharp drop in foreign direct investment (FDI), which fell to $8.7 billion in Q2 2025, less than 10% of the peak levels seen in early 2022. ### Other Emerging Economic Themes
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