BEIJING, Aug 17 (Reuters) – China’s industrial output growth slowed while retail sales grew less than expected in July, highlighting strains on the economy from weak domestic demand, extreme weather disruptions and ‌the waning effect of state policies aimed at boosting consumption.

The downbeat readings followed second-quarter growth that ‌cooled to a three-and-a-half-year low, reinforcing concerns that the economy is still struggling for momentum heading into the second half of the year.

Industrial ​output in July rose 4.5% from a year earlier, slowing from 5.3% growth in June, data released by the National Bureau of Statistics showed on Monday.

It missed expectations for a 4.8% rise in a Reuters poll of 26 analysts.

Factory output was likely hampered by unusually active extreme weather last month, with three typhoons making landfall and millions ‌of people relocated across China’s eastern and ⁠southern manufacturing hubs.

Retail sales grew 0.6%, slowing from a 1% rise in June despite summer holiday tourism spending. Analysts had forecast 1.5% growth.

Policymakers have been relying partly on ⁠trade-in subsidies to support purchases of autos, home appliances and other durable goods. But analysts at Citi noted that the pace of subsidy distribution had weakened again in July, with daily average sales dropping to 6.3 billion yuan ($934.8 million) from ​9 billion ​yuan in June.

Auto sales declined for a 10th straight ​month in July, albeit at a slower pace, ‌contrasting with strong external demand as automakers eye overseas expansion to offset domestic weakness.

Fixed-asset investment contracted 6.7% in the first seven months of 2026, compared with an expected 6% decline. It fell 5.7% in the January-June period.

Economic indicators released so far have pointed to a weak start to the third quarter. The official manufacturing purchasing managers’ index unexpectedly slipped into contraction, while export and import growth both moderated from June, though they remained in ‌double-digit territory.

Robust exports, buoyed by the global AI infrastructure buildout, ​have continued to support China’s factories. But weak domestic demand remains ​a major risk that leaves the economy vulnerable ​to shocks such as weather disruptions and trade barriers.

China logged another month of more ‌than $100 billion in trade surplus last month, with ​the full-year total on track ​to top $1 trillion for a second year.

That has continued to unnerve trading partners, with the European Union weighing tougher measures to curb its trade deficit with China, and the U.S. announcing new tariffs ​on Chinese goods.