Economy of China is expected to recover steadily in the rest of the year, boosted by stimulus measures to reverse the damage from the Covid crisis, but weak global demand and rising the U.S.-China tensions are key risks, a Reuters poll showed on Friday.
The world’s second-biggest economy is now expected to expand by 2.2% in 2020, according to the median of 42 analysts surveyed by Reuters, up from 1.8% projected in the last poll in April. But that pace would still be the weakest since 1976 – the final year of Mao Zedong’s Cultural Revolution.
China’s economy expanded 3.2% in the second quarter from a year earlier, following a record 6.8% slump in the first three months of the year as the virus and strict measures to contain it paralysed much of the country.
But analysts warn that the rebound is heavily reliant on state-led investment, while consumption remains weak. National disposable income per capita fell 1.3% in the first half of the year, according to official data.
Manufacturing and construction have snapped back relatively quickly, thanks largely to a massive infrastructure push and a rebound in homebuilding. But the services sector has lagged, with the catering, hospitality and entertainment sectors struggling to get back to normal amid worries of a resurgence of coronavirus cases and cautious consumer sentiment.
Exports have improved somewhat, largely due to massive demand for medical gear as the rest of the world battles the pandemic, though the shock of the health crisis is expected to depress global demand for some time to come.
“We still see growth uncertainties ahead from a bumpy and uneven reopening in other countries, a less favourable policy environment, and the loss of strong growth driver in consumption/services amid elevated uncertainty in the labour market,” said analysts from Bank of America Merrill Lynch.
Deteriorating relations between Washington and Beijing are also clouding the outlook, though a Phase 1 trade deal signed earlier this year still appears to be intact. In a dramatic worsening of ties this week, the United States demanded China shut its Houston consulate on accusations of “intellectual property theft”. China on Friday ordered the U.S. to close its consulate in the southwestern city of Chengdu.
“Heightened U.S.-China tension, supply chain decoupling pressures and a subdued profit outlook could hit corporate sentiment and depress trade and manufacturing activities,” UBS Economist Tao Wang said.
With the economy on the mend, China’s central bank does not see an immediate need to ease monetary policy further, but will keep conditions accommodative to support the recovery, policy sources told Reuters.
Analysts expect China will lower its one-year loan prime rate (LPR) by another 10 basis points (bps) to 3.75% by the end of 2020. It has been cut by 46 bps since last August. The poll also predicted no change to the current benchmark deposit rate. The PBOC has kept it untouched at 1.5% since October 2015.