• Saturday, Sep 25, 2021
  • Last Update : 01:39 am

As China's recovery wobbles, economists expect more policy easing

  • Published at 05:00 pm August 4th, 2021
Workers labour at a construction site in Shanghai, China July 12, 2021 Reuters

Nomura lowered its China GDP growth forecast on Wednesday to 5.1% in the third quarter and 4.4% in the fourth quarter, from 6.4% and 5.3%, respectively

China may need more monetary and fiscal easing to halt an economic slowdown in the wake of torrential rains and flooding, and authorities' tough response to outbreaks of the highly transmissible coronavirus Delta variant, economists say.

Nomura lowered its China GDP growth forecast on Wednesday to 5.1% in the third quarter and 4.4% in the fourth quarter, from 6.4% and 5.3%, respectively.

It also cut its full-year growth projection to 8.2% from 8.9%, citing the impact of Beijing's tough stance on Covid control due to the emergence of the coronavirus Delta variant in many major cities.

While calling China's zero-tolerance approach to containing the virus "increasingly costly", Lu Ting, chief economist at Nomura, said he expects Beijing to keep policy rates steady this year in favour of a mix of "targeted tightening" and universal easing.

Also Read - China's economy grows more slowly than expected in Q2

"However, we believe these policy easing measures might be insufficient at reversing the growth downtrend," he said.

Policy insiders and analysts told Reuters that China is poised to boost infrastructure spending, while the central bank may take modest easing steps.

In a note, Goldman Sachs economists said they expect easing to focus on fiscal stimulus and government bond issuance, as well as a reserve requirement ratio (RRR) cut in the fourth quarter.

Standard Chartered, ING, OCBC Bank and Pinpoint Asset Management have also recently suggested possible further RRR reductions after the central bank surprised markets in July with a broad cut.

"Two RRR cuts in 2021 would not contradict the prudent monetary policy stance, but would help to reduce corporate borrowing costs, prevent M2 and TSF (total social financing) growth from slowing further, and pre-empt GDP growth from slipping below 5% year-on-year in Q4," said Li Wei, senior China economist at Standard Chartered.

The results of a Reuters poll of 82 financial institutions this week echoed that view, with nearly a quarter of participants expecting an RRR cut in the next three months, and some forecasting cuts to the one-year loan prime rate (LPR) and medium-term lending facility (MLF) rate.

Those expectations pushed China's benchmark 10-year yield to a more than one-year low of 2.7975% this week, after the latest Politburo meeting revealed no change in stance, and as virus concerns and weak manufacturing data open the door to more easing.

But with local governments expected to issue more bonds to underpin economic growth, the dip could be short-lived.

"August could reach the peak of the government bond supply...with total net issuance of government bonds likely to hit 1 trillion yuan," said Liu Yu, an analyst at Guangfa Securities.

Facebook 50
blogger sharing button blogger
buffer sharing button buffer
diaspora sharing button diaspora
digg sharing button digg
douban sharing button douban
email sharing button email
evernote sharing button evernote
flipboard sharing button flipboard
pocket sharing button getpocket
github sharing button github
gmail sharing button gmail
googlebookmarks sharing button googlebookmarks
hackernews sharing button hackernews
instapaper sharing button instapaper
line sharing button line
linkedin sharing button linkedin
livejournal sharing button livejournal
mailru sharing button mailru
medium sharing button medium
meneame sharing button meneame
messenger sharing button messenger
odnoklassniki sharing button odnoklassniki
pinterest sharing button pinterest
print sharing button print
qzone sharing button qzone
reddit sharing button reddit
refind sharing button refind
renren sharing button renren
skype sharing button skype
snapchat sharing button snapchat
surfingbird sharing button surfingbird
telegram sharing button telegram
tumblr sharing button tumblr
twitter sharing button twitter
vk sharing button vk
wechat sharing button wechat
weibo sharing button weibo
whatsapp sharing button whatsapp
wordpress sharing button wordpress
xing sharing button xing
yahoomail sharing button yahoomail