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China Remains Stuck in Decline, Data Will Show

Beijing, China
Sam Diephuis | The Image Bank | Getty Images
Beijing, China

Investors will get a health check on China's economy this week, with June inflation and trade numbers out on Tuesday and Wednesday, respectively. And the data are expected to confirm that sluggish momentum in the world's second largest economy continued into the final month of the second quarter, according to economists.

"We don't expect much to change in terms of softer data being expected out of China," wrote Vishnu Varathan, senior economist at Mizuho Corporate Bank in a note on Monday.

"For one, inflation will probably remain benign. Trade data will probably be lackluster as the clamp-down on false invoicing bites; but base effects will be less unfavorable providing measured relief," he added, referring to the government's crackdown on export firms overstating their businesses to bring funds into the country and surpass capital restrictions.

(Read More: China: From Driver to Drag on Global Growth)

China's consumer price index (CPI) is expected to pick up modestly to 2.5 percent in June, according to a poll by Reuters, from 2.1 percent in the previous month, helped by a rise in key food items including vegetables and meat. However, such a reading would be well under the central bank's 3.5 percent target for 2013.

"Price pressures are minimal in China. Low input costs and weak demand are causing producers to cut prices to attract demand," economists at Moody's Analytics wrote.

(Read More: China June Flash HSBC PMI Falls to 9-Month Low)

The producer price index (PPI), meantime, is expected to show prices at the wholesale level remained firmly in deflation, dropping 2.7 percent in June from a fall of 2.9 percent in the previous month. Producer prices in China have been declining in since February 2012, driven by the fall in raw materials and metal prices.

On the trade front, exports are forecast to have climbed 4 percent in June after May's rise of just 1 percent. Imports, meantime, are expected to have risen 8 percent in June after a 0.3 percent contraction in the previous month. However, economists say a rebound in import growth will have been largely driven by a low base in the same month last year.

"It is increasingly clear that global demand is weak and is compounding weak domestic demand, which means minimal growth in exports and imports in June," said Moody's Analytics' economists.

(Read More: Asian Stocks Weaken on China Services PMI)

Economic data out of the world's second largest economy have consistently underperformed expectations in the recent months.

For example, both the official and HSBC manufacturing purchasing managers index (PMI) declined in June, with the latter falling to a nine-month low.

(Read More: Why China's Economy May Be Heading for a Crash)

Disappointing economic indicators for the April to June period are raising expectations for a further slowdown in China's growth in the second quarter.

The highly anticipated second quarter gross domestic product (GDP) data are due out on June 15 and are expected to show growth slowed to 7.5 percent, from 7.7 percent in the previous three months. While such a growth rates are the envy of most of the world, it would mark the slowest pace of expansion in over two decades.

—By CNBC's Ansuya Harjani