Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

China's economic growth to more than halve in second quarter, more policy support seen: Reuters poll

EconomyJul 13, 2021 04:41AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: People visit a newly opened shopping mall in Beijing, China April 16, 2021. REUTERS/Tingshu Wang

By Kevin Yao

BEIJING (Reuters) - China's economic growth likely slowed in the second quarter, as higher raw material costs hurt factories and new COVID-19 outbreaks weighed on consumer spending, a Reuters poll showed, suggesting policymakers may do more to support growth.

Gross domestic product (GDP) likely increased 8.1% year-on-year in the April-June quarter, according to the median forecasts of 51 economists polled by Reuters.

That would mark a significant slowdown from a record 18.3% expansion in the January-March period, when the year-on-year growth rate was heavily skewed by the COVID-induced slump in the first quarter of 2020.

The world's second-largest economy has been recovering since the second quarter of last year, buoyed by solid overseas demand for its exports, but growth is losing steam as manufacturing activity slows on higher raw material costs and supply shortages, while small COVID-19 outbreaks have also kept a lid on consumer demand.

"We maintain our view that downward pressure on growth will likely increase in H2," said Nomura analysts in a note, expecting pent-up demand to subside and exports growth to weaken as developed economies reopen. They also cautioned that surging raw materials prices will suppress consumption.

The People's Bank of China's decision on Friday to cut the amount of cash banks must hold as reserves, even as the central bank has sought to normalise policy to contain financial risks, has fuelled concerns about an economic slowdown.

But data on Tuesday showing China's exports grew at a much faster pace than expected in June provided some respite.

Barclays (LON:BARC) analysts estimated that the two-year average growth rate for the first half of this year would be 5.0-5.5%, well below pre-COVID-19 levels of 6.0-6.5% in 2019.

China's statistical bureau has said the two-year average growth rate in the first quarter was 5.0%.

On a quarterly basis, growth is forecast to pick up to 1.2% in April-June from 0.6% in the first quarter, the poll showed.

Economists in the poll expected the economy to expand 8.6% this year, the highest annual growth in a decade, after a 2.3% expansion in pandemic-hit 2020. The latest poll result was unchanged from April's forecast.

China has set an annual economic growth target at above 6% this year, below analysts' expectations, giving policymakers more room to cope with uncertainties. Growth is then expected to moderate to 5.5% in 2022, according to the poll.

MORE POLICY SUPPORT EXPECTED

With the economic recovery showing some signs of losing momentum and still uneven, analysts expect policymakers may roll out more steps to buoy activity later this year.

China's central bank said on Friday it would cut the bank reserve requirement ratio (RRR) for the first time since April 2020 to underpin its post-COVID economic recovery that is losing momentum.

The cut in the RRR - the amount of cash that banks must hold as reserves - will take effect on Thursday, when the statistical bureau is due to release second-quarter GDP data, along with June factory output, retail sales and fixed-asset investment.

The PBOC is likely to deliver another 50-basis points cut in the RRR in the fourth quarter, as the pressure on the economy persists while consumer inflation eases, according to the poll.

Analysts expect China will keep its one-year loan prime rate(LPR) steady at 3.85% until the end of 2021. The LPR has remained unchanged since May 2020.

"Further cuts in RRR are still possible, but fiscal policy is more important as we need to speed up spending and ensure the completion of the annual special bond quota," said Wang Jun, Beijing-based chief economist at Zhongyuan Bank.

Data from the finance ministry showed local governments issued a net 584 billion yuan ($90.34 billion) in special bonds in January-May, accounting for 16% of the annual quota of 3.65 trillion yuan. Special bonds are mainly used for funding infrastructure projects.

The poll also predicted no change to the benchmark deposit rate until the end of 2021. The PBOC has kept it steady at 1.5%since October 2015.

Consumer inflation will likely slow to 1.5% in 2021 from 2.5% in 2020, but it could pick up to 2.3% in 2022, according to the poll.

($1 = 6.4647 Chinese yuan)

(Polling by Shaloo Shrivastava in Bengaluru and Jing Wang in Shanghai; Reporting by Kevin Yao; Editing by Ana Nicolaci da Costa)

China's economic growth to more than halve in second quarter, more policy support seen: Reuters poll
 

Related Articles

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 Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
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?
 
Post
 
Replace the attached chart with a new chart ?
1000
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 Investing.com'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
Continue with Google
or
Sign up with Email