More stimulus expected as Chinese growth hits 27-year low
China’s economy recorded its slowest rate of economic growth in almost three decades in the second quarter, which analysts believe will likely pave the way for additional easing measures before the end of the year.
The world’s second-biggest economy expanded by 6.2 per cent in the three months to June, official statistics showed on Monday, in line with expectations but below the 6.4 per cent seen in the first quarter.
However, economists pointed to a strong set of data for June, including robust figures for manufacturing and retail sales.
Capital Economics analysts Julian Evans-Pritchard and Martin Rasmussen said the Chinese economy was likely to weaken further in the second half of the year.
Activity held up better than anticipated, but we expect this strength to be temporary.
Looking ahead, we doubt that the better-than-expected data for June will mark the start of a turnaround. Even with fiscal policy turning more supportive again, we think that construction activity will come under pressure in the coming quarters as the recent boom in property development unwinds.
Larry Hu, an economist at Macquarie, said that the improvements seen in June’s data were unsustainable and paved the way for more stimulus before the end of the year.
We expect stimulus to escalate around 4Q19, when policy makers would put economic growth as the top priority again. At that time, they would lower interest rates to support the property sector, loosen regulation to boost infra spending, and roll out measures to stimulate consumer durable goods such as auto and home appliance.
ANZ analyst Raymond Yeung said the Chinese economy would only need to go grow by 5.8 per cent in the second half to reach the government’s 2019 growth target of 6 per cent.
In our view, the Chinese government will not allow the quarterly growth to fall below 6.0%. Last year, President Xi Jinping stated the 70th anniversary of People’s Republic of China would be celebrated with outstanding economic performance. In 2018, H2 saw 52% of China’s GDP produced. If H2 GDP can expand by 6.0%, full year GDP will still be 6.1% in 2019.
However, Mr Yeung expressed concerns over the potential effectiveness of additional easing measures.
We remain concerned about whether the credit expansion can boost real economic activities. We believe the People’s Bank of China will continue to adopt a targeted policy as opposed to quantitative easing to support growth.
Hao Zhou, an analyst at Commerzbank, said that more important than the stable headline growth figure were signs that the trade war with the US was taking its toll on the world’s second-biggest economy.
We have received a mixed picture for now, unfortunately. Several data points continue to highlight the damage of the US-China trade war on the Chinese economy. For instance, both the official and private PMIs were sluggish in June. In addition, China's imports, particularly in the manufactured goods, have experienced a slump since late 2018.