The economy is expected to fall from recent highs, but the weakness comes earlier than expected.
China’s rebound from the V-shaped economy in the Covid-19 pandemic is slowing, warning the rest of the world of how long their own recovery will be.
On Friday, the People’s Bank of China reduced the cash reserves that most banks must hold to facilitate lending, highlighting the changing outlook. Although the People’s Bank of China stated that this is not another stimulus measure, the 50 basis point reduction in the reserve requirement ratio of most banks is unexpected.
Bloomberg’s survey of economists shows that Thursday’s data is expected to show that growth in the second quarter slowed to 8% from the record growth of 18.3% in the first quarter. Key data on retail sales, industrial production and fixed asset investment will also slow down.
The People’s Bank of China’s rapid reduction of bank deposit reserve ratios is a way to ensure that the recovery has stabilized from here rather than stumbled.
As the low base effect faded last year, people always expected the economy to fall back from the high it hit during the initial rebound. But economists said the weakness came earlier than expected and may now spread to the world.
“There is no doubt that China’s economic slowdown will have a greater impact on the global economy than it was five years ago,” said Rob Subbaraman, head of global market research at Nomura Holdings. The exit status of Covid-19 may also affect market expectations, that is, if the Chinese economy is cooling down now, other countries will soon follow. “
The G20 finance ministers meeting held in Venice on Saturday warned of the threat of undermining the fragile global recovery, saying that new variants of the coronavirus and uneven vaccination rates could undermine the bright future of the world economy. Chinese state media also quoted several analysts on Monday as saying that due to the uncertainty of global recovery, domestic economic growth will slow in the second half of the year.
The slowdown in China’s recovery also reinforces the view that factory inflation may have peaked and commodity prices may slow further.
Yao Wei, chief economist for the Asia-Pacific region of Societe Generale, said: “The slowdown in China’s economic growth should mean that the world will face deflationary pressures in the near future, especially the demand for industrial metals and capital goods.”
According to Bloomberg Economic Research, as economic growth stabilizes, changes in prospects reflect the later stages of China’s economic recovery.
At home, the biggest problem remains, given that the virus is still under control, why retail sales are still weak. According to data from Bloomberg Economic Research, sales may slow down again in June, as control measures taken to curb sporadic outbreaks of the virus have suppressed market sentiment.
Even if the People’s Bank of China provides support to SMEs, the strict stimulus measures adopted by the authorities since the beginning of the crisis have shown no signs of widespread reversal.
Bruce Pang, head of macro and strategic research at Huaxing Securities Hong Kong, said that the RRR cut was partly to “manage expectations” before the release of economic data in the second quarter of this week.
“This also provides more policy space for the future, because the momentum of economic recovery has definitely slowed.”