Goldman says China’s easing hopes revive with economy growing 4%
While pressure to step up stimulus is on the rise, top officials have so far proposed only incremental steps
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[BEIJING] China’s economic expansion strayed further below Beijing’s annual target of 4.5 to 5 per cent at the start of the third quarter, according to Goldman Sachs, fuelling expectations for monetary easing.
Hui Shan, the US bank’s chief China economist, said in a report that growth in gross domestic product early this quarter was running at about 4 per cent compared with a year earlier, down from 4.3 per cent in the prior three months. Reports on soft economic activity in July indicated that “the weakness is demand-driven”, according to Hui.
“July’s growth deceleration is more concerning than April’s because it came from a lower starting point and impacted areas that had previously looked resilient,” she said. “Our conversations with traders and investors suggest that market expectations of monetary policy easing increased somewhat.”
Goldman’s view is among the most downbeat among global banks in the days after official data showed a deepening slowdown last month, when industrial output, consumption and investment all fared worse than forecast.
Macquarie Group has said the July data suggested monthly gross domestic product growth was tracking at about 4.2 per cent. BNP Paribas estimates the expansion at 4.1 per cent, about 0.2 percentage point less than the second-half rate needed to meet China’s full-year official target.
“If GDP growth continues to hover at or even below 4 per cent in August and September even with greater fiscal efforts, it will put the fulfilment of the annual growth target at risk,” BNP Paribas economists led by Jacqueline Rong said in a report. “In that event, we expect policymakers to introduce fresh stimulus in late September or early October.”
Before the most recent deterioration, many economists had been retracting their calls for an interest-rate cut this year after higher oil prices pushed up factory-gate inflation. The People’s Bank of China (PBOC) will probably keep its policy rate unchanged this year and next, according to the median estimate in the latest Bloomberg poll of analysts in July.
A reduction in banks’ reserve requirement ratio (RRR) is deemed more likely, with analysts projecting such a move in the fourth quarter to inject liquidity into the economy.
The PBOC has been reluctant to lower rates and hasn’t cut its benchmark or RRR in over a year, at the height of the trade war with the US.
While pressure on policymakers to step up stimulus is on the rise, top officials have so far proposed only incremental steps and signalled little urgency to deliver bolder measures.
Speaking on Aug 17 at a meeting of China’s cabinet, Premier Li Qiang called on the government to ramp up supportive measures, urging it to “strive to achieve” annual economic and social development targets. Days later, officials said they are considering additional assistance this year for domestic businesses and consumers by offering loan subsidies alongside other financing support.
A commentary in the official People’s Daily on Saturday (Aug 22) defended China’s economic performance, saying “we cannot focus solely on the growth rate, nor can we get bogged down in the highs and lows of individual quarterly or monthly indicators”. Instead, it called for “focusing on the quality of technological innovation, the level of industrial development, and the sustainability of economic growth”.
Another article in the newspaper on Sunday, published under the same pen name of Zhong Caiwen, described China as “the main engine of the world economy” and “a stabilising anchor in the global supply chain”.
“Faced with a complex and challenging external environment this year, the Chinese economy has forged ahead despite the pressure, continuing to develop in a new and superior direction, demonstrating vigorous vitality and strong resilience,” it said.
Goldman’s Hui cautioned that China’s leadership remains fixated on technological innovation and high-tech manufacturing. Such “near-exclusive focus” is unlikely to lead to stronger incomes and consumption because manufacturing accounts for only about a fifth of employment in China.
“Upcoming measures may help the government meet this year’s growth target, but they remain mostly supply-driven and are unlikely to create durable momentum,” Hui said. BLOOMBERG
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