BEIJING (BLOOMBERG) – Economists upgraded their forecasts for China’s economic growth this quarter and for 2020, signaling more optimism that the country is on track for a gradual recovery.
Gross domestic product will expand at 1.5 per cent in the second quarter from a year earlier, according to the median estimate of economists in a Bloomberg survey last week. That’s faster than 1.2 per cent growth seen in the last survey in May. Economists also dialed up their full-year growth projection to 1.8 per cent from 1.7 per cent.
The results indicate the world’s second-largest economy will be able to escape a technical recession that some economists had envisioned after a historic slump of 6.8 per cent in the first three months of the year amid the coronavirus shutdowns. At the same time, while industry has returned to growth, households are still wary and consumption remains in contraction.
“The Chinese economy has continued to regain growth momentum,” said Aidan Yao, senior economist at AXA SA in Hong Kong. “With industrial production and services output both resuming growth, we now expect a positive GDP growth print for the second quarter.”
Policy makers have pledged a record amount of government debt sales to help boost domestic demand, and banks have been told to extend more credit to businesses as well as offer interest-payment holidays.
By contrast, China Beige Book, which surveyed more than 3,300 firms in the country, said the economy contracted again in the three months to June and is heading for a full-year recession.
Key metrics including manufacturing profits, capital expenditures and retail sales volumes remained at historically low levels and barely improved from those in the first quarter, CBB International said in a quarterly report.
Economists surveyed by Bloomberg expect growth in industrial output and fixed-asset investment to continue to accelerate and reach a pace similar to the pre-virus level in the second half, the survey showed.
Meanwhile, headwinds will remain in place especially on the demand side. Concerns about job stability and the resurgence of Covid-19 cases in Beijing will likely weigh on consumption, which economists forecast to remain in contraction for 2020. Factory deflation will stay throughout the year and consumer inflation will likely soften significantly on lack of demand, survey showed.
More monetary easing will likely come to shore up demand and guide borrowing costs for businesses lower. Economists expect the People’s Bank of China to cut the nominal reserve ratio for major banks to 11.5 per cent from the current 12.5 per cent in the third quarter, as well as slashing the key 7-day reverse repo interest rate to 2.05 per cent from the current 2.2 per cent.
A separate survey polling traders and market analysts showed more modest expectations for the policy outlook, in which reserve ratios are expected to be lowered to 12 per cent and the 7-day reverse repo rate to 2.1 per cent by September.
The focus of monetary policy is shifting to credit easing from the rapid reduction of interest rates previously, according to Ming Ming, head of fixed-income research at Citic Securities in Beijing. “The recovery momentum in economic fundamentals will be kept up in the third quarter under the support of special sovereign and local bonds, which means bond yields will fluctuate at a high level,” he said.
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