Economic data from China will likely show the recovery fading fast

BEIJING, July 16 (Reuters) – A flurry of economic data from China on Monday is expected to show its post-pandemic recovery fading fast, raising expectations that Beijing needs to unveil more stimulus measures soon to shore up activity and confidence. of the unstable consumer. .

After a strong start to the year following the unwinding of tough COVID-19 measures, recent data points to a sharp loss of economic momentum due to weak demand at home and abroad and a prolonged slump in the property market. of the country, traditionally a significant growth. driver.

The world’s second-largest economy likely achieved just 0.5% growth in the second quarter compared with the previous three months, on a seasonally adjusted basis, according to economists. probed by Reuters, with separate data for June expected to show industrial production, retail sales and investment continue to cool.

Some economists have blamed “scarring effects” caused by years of strict COVID measures and regulatory restrictions in the property and technology sectors, despite recent official efforts to roll back some restrictions to support the economy.

With uncertainty skyrocketing, cautious households and private businesses are hoarding their savings and paying down debt rather than making new purchases or investments. Youth unemployment has reached all-time highs.

Compared to a year earlier, gross domestic product (GDP) may have grown 7.3% in April-June from a year earlier, compared with 4.5% growth in the first quarter, the economist said.

However, that reading will be heavily skewed by a sharp drop in activity last spring, when parts of the country were winding down COVID-19 lockdowns.

Data on Thursday showed that China exports it fell the most in three years in June, falling a worse-than-expected 12.4% yoy as cooling global demand adds more stress to the economy.

New house prices They were unchanged in June, the weakest result this year, with increases slowing across the country due to continued weakness in the real estate sector, which accounts for a quarter of economic activity.

producer prices fell at the fastest pace in more than seven years in June and consumer prices teetered on the brink of deflation, data showed earlier in the week.

The authorities are likely to implement more stimulus measures, including fiscal spending to finance high-value infrastructure projects, more support for consumers and private businesses, and some property easing policies, policy experts and economists said. But analysts say a quick turnaround is unlikely.

China’s central bank will use policy tools such as the reserve requirement ratio (RRR) and the medium-term lending facility to overcome the challenges, a senior bank official said on Friday.

Analysts polled by Reuters 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 benchmark loan interest rates stable. .

The central bank cut the RRR, the amount of cash banks must hold as reserves, in March.

chinese too cut its benchmark interest rates by a modest 10 basis points in June, the first such reduction in 10 months.

But it is likely that the central bank be careful to further reduce interest rates on loans. The reluctance to borrow by private companies and households means continued policy easing could hurt banks already struggling with margin pressures, analysts said.

Aggressive easing could also trigger more capital outflows from China’s struggling financial markets and put pressure on the yuan, which recently fell to eight-month lows.

Reporting by Kevin Yao; Edited by Kim Coghill

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