The economy was expected to decline from its recent heights, but the softening comes earlier than expected.
The economic rebound from China’s Vovid-shaped Covid-19 pandemic is slowing, sending a warning to the rest of the world about the durability of its own recoveries.
The changing outlook was highlighted on Friday when the People’s Bank of China cut back on the amount of cash most banks have to hold in reserve to increase lending. Although the PBOC said the measure was not a renewed stimulus boost, the breadth of the 50 basis point reduction on most banks ’reserve ratio requirements was surprising.
According to a Bloomberg survey of economists, data for Thursday is expected to show moderate growth in the second quarter to 8%, from a record gain of 18.3% in the first quarter. Key readings on retail sales, industrial production and investment in fixed assets will also be moderated.
The rapid passage of the PBOC to the RRR of the lower banks is a way to make sure the recovery plateaus from here, rather than stumble.
The economy was expected to always fall from the heights affected during its initial rebound and as last year’s base effect was wiped out. But economists say the softening has come sooner than expected and could now be reduced worldwide.
“There is no doubt that the impact of a slowdown in China on the global economy will be greater than five years ago,” said Rob Subbaraman, head of global market research at Nomura Holdings Inc. Covid-19’s status could also influence market expectations that if China’s economy cools now, others will soon follow. “
A group of 20 finance ministers meeting in Venice on Saturday sounded the threat that could derail a fragile global recovery, saying new coronavirus variants and an uneven vaccination rate could undermine a happier outlook for the global economy. . Chinese state media also quoted several analysts on Monday as saying domestic growth will slow in the second half due to an uncertain global recovery.
The slowdown in China’s recovery also reinforces the view that factory inflation is likely to peak and that commodity prices could moderate further.
“China’s slowdown in growth should mean short-term deflationary pressures globally, mainly due to demand for industrial metals and capital goods,” said Wei Yao, chief economist at Asia Pacific Societe Generale SA.
The changing outlook reflects China’s advanced stage of recovery as growth stabilizes, according to Bloomberg Economics.
Nationwide, the big puzzle remains the reason why retail sales remain sluggish, as the virus remains under control. According to Bloomberg Economics, sales are likely to slow again in June, as sentiment was weighed down by controls to contain sporadic outbreaks of the virus.
Even with PBOC support for small and medium-sized enterprises, there is no indication of a broad investment in the disciplined stimulus approach that authorities have taken since the crisis began.
The reduction in the RRR was partially to “manage expectations” ahead of economic data for the second quarter of this week, said Bruce Pang, head of macro research and strategy at China Renaissance Securities Hong Kong.
“It also provides more policy margin in the future, as the momentum for economic recovery has certainly slowed.”