Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

As China's recovery wobbles, economists expect more policy easing

EconomyAug 04, 2021 03:35AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. FILE PHOTO: Workers labour at a construction site in Shanghai, China July 12, 2021. Picture taken July 12, 2021. REUTERS/Aly Song

SHANGHAI (Reuters) - China may need more monetary and fiscal easing to halt an economic slowdown in the wake of torrential rains and flooding, and authorities' tough response to outbreaks of the highly-transmissible coronavirus Delta variant, economists say.

Nomura lowered its China GDP growth forecast on Wednesday to 5.1% in the third quarter and 4.4% in the fourth quarter, from 6.4% and 5.3%, respectively.

It also cut its full-year growth projection to 8.2% from 8.9%, citing the impact of Beijing's tough stance on COVID control due to the emergence of the coronavirus Delta variant in many major cities.

While calling China's zero-tolerance approach to containing the virus "increasingly costly", Lu Ting, chief economist at Nomura, said he expects Beijing to keep policy rates steady this year in favour of a mix of "targeted tightening" and universal easing.

"However, we believe these policy easing measures might be insufficient at reversing the growth downtrend," he said.

Policy insiders and analysts told Reuters that China is poised to boost infrastructure spending, while the central bank may take modest easing steps.

In a note, Goldman Sachs (NYSE:GS) economists said they expect easing to focus on fiscal stimulus and government bond issuance, as well as a reserve requirement ratio (RRR) cut in the fourth quarter.

Standard Chartered (OTC:SCBFF), ING, OCBC Bank and Pinpoint Asset Management have also recently suggested possible further RRR reductions after the central bank surprised markets in July with a broad cut.

"Two RRR cuts in 2021 would not contradict the prudent monetary policy stance, but would help to reduce corporate borrowing costs, prevent M2 and TSF (total social financing) growth from slowing further, and pre-empt GDP growth from slipping below 5% year-on-year in Q4," said Li Wei, senior China economist at Standard Chartered.

The results of a Reuters poll of 82 financial institutions this week echoed that view, with nearly a quarter of participants expecting an RRR cut in the next three months, and some forecasting cuts to the one-year loan prime rate (LPR) and medium-term lending facility (MLF) rate.

Those expectations pushed China's benchmark 10-year yield to a more than one-year low of 2.7975% this week, after the latest Politburo meeting revealed no change in stance, and as virus concerns and weak manufacturing data open the door to more easing.

But with local governments expected to issue more bonds to underpin economic growth, the dip could be short-lived.

"August could reach the peak of the government bond supply...with total net issuance of government bonds likely to hit 1 trillion yuan," said Liu Yu, an analyst at Guangfa Securities.

As China's recovery wobbles, economists expect more policy easing

Related Articles

Marketmind: Teutonic shifts
Marketmind: Teutonic shifts By Reuters - Sep 27, 2021

(Replaces chart with correct one) A look at the day ahead from Danilo Masoni. The main takeaway from Sunday's German election is that coalition talks to form the first post-Merkel...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email