BEIJING (Reuters) – China is expected to report on Monday that economic growth slowed at its weakest pace in at least 27 years in the second quarter, reinforcing the need for more stimulus as the trade war with the United States progresses. United.
FILE PHOTO: Workers are seen on a production line that manufactures tires at a factory in Nantong, Jiangsu Province, China, April 28, 2019. REUTERS / Stringer / File Photo
Policymakers are likely to increase support measures to prevent the massive loss of jobs that could pose a threat to social stability, but analysts say that the space for aggressive stimulus is limited by the fear of raising levels already high debt and structural risks.
"The penumbra looming over China's economy is unlikely to disappear soon due to challenges on both the domestic and foreign fronts," ANZ analysts said in a note.
Analysts polled by Reuters expect China to report gross domestic product (GDP) grew 6.2% in the April-June quarter compared to the previous year, the slowest pace since the first quarter of 1992, the first quarterly data recorded.
That would mark a new loss of momentum compared to 6.4% in the previous quarter, which could bring year-round economic growth to a nearly 30-year low of 6.2%.
The government has relied more on fiscal stimulus to shore up growth this year, announcing massive tax cuts of nearly 2 trillion yuan ($ 291 billion) and a 2.15 trillion yuan quota for the issuance of special bonds by local governments with the aim of promoting the construction of infrastructure.
But the economy has been slow to respond, and business confidence remains unstable, which weighs heavily on investment. Investors fear that a longer and more expensive trade war between the two largest economies in the world could trigger a global recession.
The government will publish second-quarter GDP data on Monday (0200 GMT), along with June activity data, which could point to continued weakness.
Friday's data showed that exports fell in June after US tariffs rose sharply on Chinese products, while imports contracted more than expected, highlighting slow domestic demand. However, bank loans and credit data were largely solid.
A recent official factory indicator for June showed that Chinese manufacturers were losing jobs at the fastest pace since the global financial crisis a decade ago.
Will PBOC FOLLOW FED?
Prime Minister Li Keqiang said this month that China will do
the timely use of cuts in the reserve requirement ratio (RRR) of banks and other financing tools to support smaller companies, while repeating the vote not to use a "flood-like" stimulus.
Investors are anxiously waiting to see if the People's Bank of China (PBOC) will follow the US Federal Reserve. UU To facilitate the policy.
Federal Reserve Chairman Jerome Powell again indicated on Thursday that the central bank of the US is likely UU Cut interest rates at your next meeting later this month, as companies reduce investment due to commercial disputes and a slowdown in global growth.
Most analysts believe that the PBOC is more likely to reduce its newly developed market-based interest rates, or continue to cut the RRR, especially for small banks, if it chooses to follow the Fed.
Economists in the latest Reuters poll predicted two RRR cuts of more than 50 basis points each in this quarter and fourth.
quarter, but did not expect the PBOC to reduce its benchmark interest rate, as it did in previous slowdowns.
ANZ expects the central bank to reduce the 7-day reverse repurchase rate by 5 basis points (bps), and cut the RRR by another 100 bps during the rest of the year.
The PBOC has reduced the amount of cash that banks must keep in reserve six times since the beginning of 2018 to stimulate credit growth. It has also quietly lowered the short-term rates.
China does not need "big" stimuli unless the trade war gets worse, a central bank adviser said earlier this month.
Leaders of the United States and China agreed in late June to try to resume trade talks after talks broke down in May, and Washington said it would suspend additional tariffs.
But the existing taxes imposed by both parties remain in effect, weighing on the benefits and supply chains, and the two sides are still faced with important issues necessary for an agreement.
GRAPH – China's economic trends: tmsnrt.rs/2iO9Q6a
Kevin Yao's report; Edited by Kim Coghill