Gross domestic product expanded 6.3% in the second quarter from a year prior, data released by the National Bureau of Statistics showed on Monday, weaker than the median forecast of 7.1% by economists surveyed by Bloomberg. 

Monthly indicators for June showed a mixed picture, with a notable slide in retail sales and a weakening in the property market, while industrial production improved.

“This is a consumption-induced slowdown, which calls for policy support on the demand side,” said Hao Zhou, chief economist at Guotai Junan Hong Kong Ltd. “We believe further rate cuts are more or less warranted.”

Beijing has set a moderate GDP growth target of around 5% for this year, but is contending with a barrage of economic challenges including the looming prospect of deflation, falling exports and a property sector in crisis. The People’s Bank of China, which cut its key policy rate in June, refrained from easing policy on Monday, although many analysts expect a move in coming months. 

China’s benchmark CSI 300 Index of stocks fell 1% as of 10:57 a.m. as Asian peers broadly dropped. It was the index’s first decline in three sessions. The onshore yuan weakened 0.3% at 7.1635 per dollar. 

The NBS said in a statement that while the economy rebounded, the “global political and economic situations are complicated, and the domestic economy’s recovery and development foundation is still not solid yet”.

Xing Zhaopeng, senior China strategist at Australia & New Zealand Banking Group Ltd, said the data miss may prompt officials to accelerate fiscal spending to boost investment. 

“There has been a lot of signals including conferences between the government and foreign investors and entrepreneurs, which suggest that follow up policy will come,” he said. “Fiscal spending will be the major focus in the next two weeks.”

Rising US interest rates and high debt levels in the Chinese economy have limited the central bank’s scope to carry out aggressive easing measures. Some economists also argue that weak business and consumer confidence have reduced the effectiveness of monetary stimulus, calling for fiscal policy to play a bigger role in the economy.

Investors are looking to a likely meeting of the Communist Party’s top decision-making body later in July to provide crucial clues on economic policies going forward. Xing said there could be fiscal measures announced before the Politburo meeting. DM