BEIJING, July 16 (Portal) – A flurry of economic data out of China on Monday is expected to show the post-pandemic recovery is quickly fizzled out, raising expectations that Beijing may soon have to unveil more stimulus measures to boost the economy and fluctuating consumer confidence is holding back .
After a strong start to the year following the lifting of strict COVID-19 measures, recent data point to a sharp slowdown in economic momentum, driven by weak domestic and international demand and an ongoing slump in the country’s real estate market, traditionally represents significant growth, is due to the driver.
According to economists polled by Portal, the world’s second largest economy likely grew by a seasonally adjusted 0.5% in the second quarter compared to three months earlier. Separate data for June are expected to show industrial production, retail sales and investment continue to cool.
Some economists blame the “scarring effects” that years of tough COVID measures and government restrictions have caused in the real estate and tech sectors – despite recent official efforts to lift some restrictions to shore up the economy.
In the face of great uncertainty, cautious households and private businesses are building up their savings and paying off their debts rather than making new purchases or investments. Youth unemployment has reached record highs.
On a year-on-year basis, gross domestic product (GDP) is expected to have grown 7.3% yoy in April and June, compared with growth of 4.5% in the first quarter, the economist said.
However, that reading will be severely skewed by a sharp drop in activity last spring as parts of the country imposed crippling COVID-19 lockdowns.
Data on Thursday showed that China’s exports in June fell the sharpest in three years, falling 12.4% year-on-year more-than-expected as slowing global demand weighed even more on the economy.
New home prices were flat in June, the weakest result this year, with gains slowing across the country on continued weakness in the housing sector, which accounts for a quarter of economic activity.
Producer prices fell at their fastest rate in over seven years in June and consumer prices were on the verge of deflation, data showed earlier in the week.
Authorities are likely to take more stimulus measures, including tax spending to fund major infrastructure projects, more support for consumers and private businesses, and some easing of housing policies, political insiders and economists said. However, analysts consider a rapid trend reversal to be unlikely.
China’s central bank will use policy tools like the reserve requirement ratio (RRR) and medium-term lending facility to deal with the challenges, a senior bank official said on Friday.
Analysts polled by Portal expect the central bank to cut banks’ reserve requirement ratio (RRR) by 25 basis points in the third quarter, freeing up more funds for lending while keeping interest rates stable.
The central bank lowered the RRR – the amount of cash banks are required to hold as reserves – in March.
China also cut interest rates by a modest 10 basis points in June, the first such cut in 10 months.
However, the central bank is likely to shy away from lowering lending rates further. The reluctance of private companies and households to lend means further monetary easing could hurt banks, which are already struggling with margin pressures, analysts said.
Aggressive easing could also lead to further capital outflows from China’s troubled financial markets and put pressure on the yuan, which recently fell to an eight-month low.
Reporting by Kevin Yao; Edited by Kim Coghill
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