BEIJING Economic Data Signals Fizzling Post-Pandemic Recovery, Urgent Need for Stimulus Measures, says Reuters

China’s economy is experiencing a rapid decline in its post-pandemic recovery, with data showing a loss of economic momentum and weakening consumer confidence. Analysts expect Beijing to introduce more stimulus measures to support economic activity. Despite initial progress after the easing of COVID-19 measures, recent indicators suggest a slowdown due to weak demand domestically and internationally, as well as a prolonged slump in the property market. These factors are significant growth drivers for the country.

Economists polled by Reuters predict that China’s second-quarter growth will likely be just 0.5% compared to the previous quarter, on a seasonally adjusted basis. Additionally, data for June is expected to show a continued cooling in industrial output, retail sales, and investment. Some experts attribute the decline to the long-term impact of strict COVID measures and regulatory constraints on the property and technology sectors, despite recent efforts to reverse some of these constraints.

Consumers and private businesses are adopting a cautious approach, choosing to save and pay off debts rather than making new purchases or investments. This behavior, along with a record high in youth unemployment, adds to the uncertainty in the economic outlook. However, when compared to the same period last year, economists estimate that China’s gross domestic product (GDP) may have grown by 7.3% in April-June.

It is important to note that this year-on-year growth figure is heavily skewed by the sharp decline in activity during the same period last year, when parts of the country were under COVID-19 lockdowns. Furthermore, recent data showed China’s exports falling the most in three years in June, reflecting cooling global demand and adding pressure on the economy.

The property sector, which contributes to a significant portion of economic activity, also continues to weaken, with new home prices remaining unchanged in June. Producer prices have fallen at the fastest pace in over seven years, and consumer prices are on the verge of deflation.

To address these challenges, policy insiders and economists expect Chinese authorities to introduce additional stimulus measures, including fiscal spending for infrastructure projects, increased support for consumers and private firms, and some easing of property policies. The central bank may utilize tools such as the reserve requirement ratio (RRR) and medium-term lending facility to navigate these challenges.

Analysts anticipate that the central bank will cut banks’ reserve requirement ratio by 25 basis points in the third quarter to provide more funds for lending. However, there is caution around further reductions in lending rates. Reluctance to borrow among private companies and households could negatively impact banks facing margin pressures. Aggressive easing could also result in capital outflows from China’s struggling financial markets and put pressure on the yuan currency.

In conclusion, China’s post-pandemic economic bounce appears to be fizzling out as recent data points to a loss of economic momentum. Weak demand, both domestically and internationally, along with a prolonged slump in the property market, are contributing factors. Analysts anticipate that Beijing will introduce additional stimulus measures to support economic activity, although a quick turnaround is unlikely. The central bank’s policy tools, such as the reserve requirement ratio and medium-term lending facility, will be instrumental in weathering these challenges.