A raft of new economic data coming out of China on Monday is expected to show the post-pandemic bounce it had enjoyed will be rapidly dissipating, leading many to assume Beijing will have to provide more stimulus measures soon to boost consumer confidence and shore up manufacturing activity.
Following a strong start to the year, after the government suspended the onerous Covid restrictions which had been hampering its recovery, recent data has shown that economic momentum has been slowing as weak demand domestically and abroad has combined with a slump in the nation’s property market to weigh down the economy.
According to economists surveyed by Reuters, the second biggest economy in the world is believed to have registered only 0.5 percent growth over the second quarter of the year compared with the previous quarter, on a seasonally adjusted basis. They expect that separate data for June will show industrial output, retail sales, and investment continuing to slow down.
Analysts point to “scarring effects” on the Chinese economy, produced by years of strict Covid restrictions imposed during and after the pandemic, as well as regulatory impacts on the property and technology sectors, as responsible for the slowdown, despite the government’s efforts to reverse some of the restrictions to support the economy.
While youth unemployment has hit record highs, the gross domestic product (GDP) has grown 7.3 percent from April to June, compared to one year prior, and 4.5 percent over the previous quarter. However analysts note, that yearly figure is skewed by the fact that a year prior China was paralyzed in pandemic lockdowns.
Meanwhile, China’s exports fell at the fastest rate in three years in June, dropping by a worse than forecast 12.4 percent year over year, as the cooldown in global demand continues to weigh down China’s economy.
New home prices were unchanged in June, mirroring the weakest result this year, as price rises slowed nationwide demonstrating the continued weakness of the property sector, which is responsible for a quarter of the nation’s economic activity.
Data earlier in the week showed that consumer prices were on the edge of being deflationary for June, as producer prices fell at the quickest pace in more than seven years.
Analysts expect to see the government attempt to implement more stimulus measures, including more spending on big-ticket infrastructure projects, more stimulus provided to consumers and private firms, and some easing in property policies. However analysts predict any turnaround will not happen quickly.
On Friday, a senior bank official said that the government’s central bank will utilize policy tools, such as the reserve requirement ratio (RRR) and medium-term lending facility to help the economy through this period.
Economists polled by Reuters said that they felt the central bank would likely cut the reserve requirement ratio (RRR) by 0.25 percent in the third quarter, to free up more capital for lending, while keeping interest rates steady. The RRR was previously cut by the central bank in March.
