Concerns are growing that China’s economy is on the verge of deflation after another round of less-than-impressive economic data on July 17 provided further evidence that stalled growth could have a negative impact. could become more severe without more meaningful policy intervention.
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According to Albert Park, chief economist at the Asian Development Bank, China’s cautious consumer confidence is a “trigger” for the country’s fragile recovery.
On Monday, the world’s second-largest economy reported second-quarter GDP figures that largely missed expectations.
China’s economic growth 6.3% from a year ago in the quarter ended June, while retail sales in June rose 3.1%, stoking fears that its post-Covid growth rate is faltering.
“What we really hope is that Chinese consumers and businesses will regain their confidence to start spending more and invest more,” Park told CNBC.Asian Squawk Box” on Wednesday.
“We see their caution in this respect as really a factor in the slow recovery in China.”
Last month, the People’s Bank of China cut its key policy interest rates for the first time in 10 months as the economic recovery continues to lose momentum.
“The central bank recently lowered interest rates in an attempt to stimulate the economy, but they have to be careful,” Park warned. “They’ve been pretty disciplined in trying to bring down the debt to the economy, in terms of debt levels.”
But he added that the country still has “very high levels of debt” after several years of the pandemic. China lifts strict restrictions on Covid last year.
Growth goals
ADB, in prospect report released on Wednesday, said China is projected to grow 5% this year — unchanged from April’s forecast.
“Growth in manufacturing investment is expected to slow with a cooling of exports, while investment in infrastructure is likely to remain stable,” the bank said of China. “Monetary and fiscal policies will continue to support the economic recovery, particularly boosting domestic demand.”
However, the bank cut its economic growth forecast for next year for developing Asian countries, while keeping its forecast for 2023 unchanged.
ADB’s lowering of its 2024 economic growth estimate from 4.8% to 4.7% reflects a global outlook “overshadowed by the lagging effects of rising interest rates.” However, the sector is still projected to grow 4.8% in 2023, unchanged from April’s forecast, the bank said.
