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(Bloomberg) -- China’s economy probably failed to turn the corner on its worst stretch in five quarters, with an uneven recovery in July held back by consumer spending still lagging industrial activity and investment.

Data due Thursday will show retail sales remained sluggish, according to the median forecasts compiled by Bloomberg, despite a slight improvement thanks to a more favorable base of comparison and the summer holiday season. Growth in the industrial sector and investment probably stagnated but continued to outpace consumption that accounts for nearly half of gross domestic product.

“We anticipate the data to reflect a sluggish start to the third quarter,” Carlos Casanova, senior Asia economist at Union Bancaire Privee, said in a report this week. Weak inflation figures point to additional downside risks to the outlook for consumption, he added.

An absence of a meaningful recovery in the economy is almost certain to amplify calls for additional policy stimulus in the rest of this year as Beijing chases its annual growth target of around 5%. China’s top leaders already signaled a more supportive stance toward growth at a recent Politburo meeting by vowing to shift their focus to consumption — long the weak link in the economy.

What Bloomberg Economics Says ...

“China’s activity data for July will probably show the recovery stuck in low gear at the start of the third quarter, barely improving from June’s poor performance.”

— For full analysis, click here

The central bank’s unexpected interest-rate cut last month and a new initiative to promote spending on services have done little to improve consumer confidence, with a persistent housing downturn still a drain on people’s primary store of wealth.

Though the government rolled out its biggest rescue package for the property sector in May, it has yet to help the market bottom out quicker.

More monetary stimulus could soon be on the way. For now, the People’s Bank of China is set to keep the rate on its one-year policy loans, known as the medium-term lending facility, at 2.3% this month, according to all but one of the 15 economists polled by Bloomberg.

The central bank has downplayed the role of the MLF as a key policy lever and shifted instead to the shorter-term instrument of seven-day reverse repurchase agreements. It’s planning to move the date on which it conducts its MLF operation to the 25th of each month from the 15th previously, and the change could take effect as early as in August, Bloomberg News reported earlier.

Here’s what to expect when the National Bureau of Statistics publishes the data on 10 a.m. Thursday:

Consumption

Retail sales rose 2.6% in July from a year ago, according to economists polled by Bloomberg, up from a 2% gain in June that was the slowest monthly increase since December 2022. That’s still far worse than growth of around 8% seen before the pandemic.

The reading likely benefited from a low base of comparison last year, when consumers pulled back after an initial release of pent-up demand following an economic reopening from the Covid lockdowns that kept everyone at home.

Travel, catering and entertainment-related spending during the summer months probably also gave consumption a lift. Residents are spending faster on services even as they remain thrifty and refrain from splurging on goods.

Demand for durable products suffered, however, with car sales — accounting for a 10th of overall retail sales — recording a decline in July.

“Weak retail sales growth underscores the country’s two-speed recovery; industry is leading economic growth, while households remain in hiding,” Moody’s Analytics economists wrote in a report last week.

Industrial Production

Industrial production likely expanded 5.2% in July, softening slightly from 5.3% in June. High temperatures and heavy rains may have dragged down factory activity and suppressed demand.

And in another sign of growing weakness, the official manufacturing purchasing managers’ index indicated a third straight month of contraction in July, while a private survey on manufacturing PMI shrank for the first time in nine months.

A rise in inventory levels at Chinese steel mills, alongside weak production, also points to frail demand. Overseas orders softened, as falling prices weighed on export growth, which has been a bright spot in the economy so far this year.

Investment

Fixed-asset investment is forecast to increase 3.9% in the first seven months from a year ago, unchanged from the January-June period. Property investment probably fell 9.9% over the same period, narrowing slightly from a 10.1% loss in the first six months.

The government is accelerating its bond sales, which are a major source of infrastructure funding, after issuance slowed in the first half of 2024 from the previous two years and put the brakes on construction.

The central bank in May set up a 300 billion yuan ($41.8 billion) program of cheap funding to help local governments buy unsold apartments and convert them into subsidized housing. The take-up of that program was still low, however, in a sign of hurdles for policies that aim to achieve a turnaround in the property market.