Recent data from China has raised concerns that a long-lasting slowdown in growth could be on the horizon for the world’s second-largest economy, and markets have been the first to take a hit.

On Tuesday, China’s National Bureau of Statistics released weaker-than-expected growth in retail sales, industrial output and investment, along with a decline in property investment for July. Consumer and business prices for the month too dropped, intensifying the threat of deflation, compounded by weak export and import data from the previous week. The data is worrying because it shows that China’s post-pandemic recovery has been underwhelming.

After the release of the July data, economists cited by Reuters raised doubts about China achieving its 5% growth target this year without increased fiscal stimulus. However, uncertainty looms over China’s appetite for large fiscal stimulus due to high municipal debt levels.

JPMorgan Chase and Barclays have lowered their China growth predictions in response to the economic data and lack of effective stimulus. JPMorgan revised its 2023 growth forecast to 4.8% from the earlier 6.4%, while Barclays lowered its China’s GDP growth estimate to 4.5% from 4.9%.

Households in focus: China’s slowdown is exacerbated by the imbalance between domestic consumption and debt-fuelled investment. Economists believe that weak domestic demand is behind the subdued private sector investment and deflation in July, and boosting household consumption would drive the recovery. This has increased pressure on the state to revive demand and push consumers to spend more and save less, a tough ask for a nation where household consumption is among the lowest contributors to the GDP—a key structural imbalance.

China’s central bank unexpectedly cut interest rates on Tuesday, easing borrowing costs, to kickstart consumption levels. However, experts have cautioned that the cuts are too small to have a substantial impact.

Markets take a hit: Hong Kong stocks dived to a 10-week low after JPMorgan and Barclays slashed their China growth predictions.

The Hang Seng Index—a stock market index that tracks the performance of major companies listed on the Hong Kong Stock Exchange—closed 1.4% lower on Wednesday, marking its lowest level since the beginning of June. The Hang Seng tech index (which tracks the performance of 30 largest tech companies listed in Hong Kong) dipped by 1.3% and the Shanghai Composite Index (that tracks the performance of all stocks listed on the Shanghai Stock Exchange) by 0.8%.

An index of Chinese stocks traded in Hong Kong plummeted by 1.5%, resulting in a total loss of 9.1% this month, and making it the poorest performer among global equity benchmarks, according to an SCMP report.

Additionally, the CSI 300 index (which tracks major companies listed in Shanghai and Shenzhen) dropped about 5%.

Meanwhile: China stopped publishing data on youth unemployment, which touched a record high of 21.3% in June. Additionally, in July, 49 of 70 major cities in the country recorded a drop in home prices amid the sector’s worsening debt crisis, which is scaring away many home buyers.