China’s economic data likely show that recovery is fading fast

BEIJING, July 16 (Reuters) – A flurry of economic data from China on Monday is expected to show the post-pandemic upswing is quickly fizzling out, raising expectations that Beijing will soon have to unveil more stimulus measures to shore up activity and faltering consumer confidence .

After a strong start to the year following the winding down of tough COVID-19 measures, recent data has pointed to a sharp loss of economic momentum due to weak demand at home and abroad and a prolonged slowdown in the country’s property market, traditionally a significant growth driver .

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

Some economists have blamed the “scarring effects” caused by years of stringent COVID measures and regulatory curbs on the property and technology sectors – despite recent official efforts to reverse some curbs to support the economy.

With great uncertainty, cautious households and private businesses are building up their savings and paying down debt rather than making new purchases or investments. Youth unemployment has reached a record high.

Compared to a year earlier, gross domestic product (GDP) may have grown by 7.3 percent in April-June from a year earlier, compared with growth of 4.5 percent in the first quarter, the economist said.

However, that reading will be heavily skewed by a sharp decline in activity last spring, when parts of the country were in crippling COVID-19 lockdowns.

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

New house prices were unchanged in June, the weakest performance this year, with gains slowing nationally amid continued weakness for the property sector, which accounts for a quarter of economic activity.

Producer prices fell at the fastest pace in more than seven years in June, and consumer prices teetered on the edge of deflation, data showed earlier this week.

Authorities are likely to roll out more stimulus measures, including fiscal spending to fund major infrastructure projects, more support for consumers and private firms, and some easing of property policy, political insiders and economists said. But analysts say a quick turnaround is unlikely.

China’s central bank will use policy tools such as the reserve requirement ratio (RRR) and medium-term lending facility to tackle the challenges, a senior bank official said on Friday.

Analysts polled by Reuters expect the central bank to cut the banks’ reserve requirement ratio (RRR) by 25 basis points in the third quarter, freeing up more funds for lending, while keeping benchmark lending rates stable.

The central bank cut the RRR – the amount of cash that 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 reduction in 10 months.

But the central bank will probably be cautious about cutting lending rates further. A reluctance to borrow among private businesses and households means continued policy easing could hurt banks already battling margin pressure, analysts said.

Aggressive easing could also trigger more capital outflows from China’s struggling financial markets and pressure the yuan currency, which recently fell to an eight-month low.

Reporting by Kevin Yao; Editing by Kim Coghill

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