Chinese economic data likely to show recovery fading fast

BEIJING (Reuters) – A flurry of economic data out of China on Monday is expected to show its post-pandemic rebound quickly waning, raising fears that Beijing may soon unveil more stimulus to bolster activity and confidence. vulnerable consumers.

After a strong start to the year following the dismantling of strict COVID-19 measures, recent data has indicated a sharp loss of economic momentum due to weak domestic and external demand and a prolonged slump in the the country’s real estate market, traditionally a driver significant growth.

The world’s second-largest economy likely only managed growth of 0.5% 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 strict COVID measures and regulatory restrictions on the property and tech sectors – despite recent official efforts to reverse some restrictions to support the economy.

With high uncertainty, cautious households and private businesses are hoarding their savings and paying off their debts rather than making new purchases or investments. Youth unemployment has reached record highs.

Compared with a year earlier, gross domestic product (GDP) may have increased 7.3% in April-June from a year earlier, compared to 4.5% growth in the first quarter, the official said. ‘economist.

However, this reading will be heavily skewed by a sharp drop in activity last spring as parts of the country crippled COVID-19 shutdowns.

Data on Thursday showed China’s exports fell the most in three years in June, falling 12.4% year-on-year, worse than expected, as cooling global demand adds further pressure on the economy. ‘economy.

New home prices were unchanged in June, the weakest result this year, as increases slowed nationwide due to continued weakness in the real estate sector, which accounts for a quarter of economic activity.

Producer prices fell at the fastest rate in more than seven years in June and consumer prices tipped to the brink of deflation, data showed earlier in the week.

Authorities are likely to roll out more stimulus, including fiscal spending to fund costly infrastructure projects, increased support for consumers and private businesses, and some easing of housing policy, political insiders and officials said. economists. 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 reserve requirement ratio (RRR) for banks by 25 basis points in the third quarter, freeing up more funds for lending, while keeping lending rates down stable references.

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

But the central bank is likely to be reluctant to cut lending rates further. The reluctance to borrow from private businesses and households means continued policy easing could hurt banks already struggling with margin pressures, analysts said.

Aggressive easing could also trigger more capital outflows from troubled Chinese financial markets and put pressure on the yuan, which recently fell to its lowest level in eight months.

(Reporting by Kevin Yao; Editing by Kim Coghill)

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