Chinese economic data is likely to show that the recovery is fading fast

BEIJING (Reuters) – A slew of economic data out of China on Monday were expected to show its post-pandemic recovery is fading fast, raising expectations that Beijing needs to unveil more stimulus measures soon to prop up activity and shake consumer confidence. .

After a strong start to the year following the unwinding of tough COVID-19 measures, recent data indicated a sharp loss in economic momentum due to weak demand at home and abroad and an extended slump in the country’s real estate market, which is traditionally high growth. driver.

The world’s second-largest economy likely managed growth of just 0.5% in the second quarter compared with three months earlier, on a seasonally adjusted basis, according to economists polled by Reuters. Separate data for June is expected to show industrial production and sales. Retail and investment. It continues to cool.

Some economists have blamed the “scarring effects” of years of strict COVID measures and regulatory restrictions on the real estate and technology sectors — despite recent official efforts to reverse some of the restrictions to prop up the economy.

As uncertainty increases, cautious households and private companies are building their savings and paying off debt rather than making new purchases or investments. Youth unemployment has reached record levels.

Compared to the previous year, GDP may have grown 7.3% in April-June from a year earlier, compared with 4.5% growth in the first quarter, an economist said.

However, that reading will be severely distorted by a sharp slump in activity last spring, when parts of the country were in a crippling COVID-19 lockdown.

Data on Thursday showed that China’s exports fell by the most in three years in June, falling a worse-than-expected 12.4% year-on-year, as slumping global demand adds more pressure to the economy.

New home prices were unchanged in June, the weakest result this year, with hikes nationwide slowing amid continued weakness in the real estate sector, which accounts for a quarter of economic activity.

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

The authorities are likely to roll out more stimulus steps including fiscal spending to fund large infrastructure projects, more support for private consumers and businesses, and some easing in property policy, policy insiders and economists said. But analysts say a rapid turnaround is unlikely.

A senior Chinese bank official said on Friday that China’s central bank will use policy tools such as the reserve requirement ratio and the medium-term lending facility to address the challenges.

Analysts polled by Reuters expected the central bank to cut banks’ reserve requirement ratio by 25 basis points in the third quarter, freeing up more money to lend, while keeping benchmark lending rates steady.

The central bank lowered the proportion of cash banks must hold as reserves in March.

China also cut its benchmark lending rates by a modest 10 basis points in June, the first such cut in 10 months.

But the central bank is likely to be wary of further cuts in lending rates. Analysts said the reluctance to borrow between private companies and households means continued easing could hurt banks already struggling with margin pressure.

Heavy easing could also lead to more capital outflows from China’s troubled financial markets and put pressure on the yuan currency, which recently slid to an eight-month low.

(Reporting by Kevin Yao). Editing by Kim Coghill

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