A series of negative indicators have lowered expectations for China’s economic performance in July, signaling potential challenges for the remainder of 2024. This situation highlights the need for additional stimulus measures beyond temporary solutions to address pain points in the world’s second-largest economy.
Calls for growth-boosting measures for the $19 trillion
economy have persisted among officials, as the anticipated post-pandemic
recovery failed to materialize in 2023. Despite these challenges, the
government maintains a target of approximately 5% economic growth for the
current year.
In the United States, stock markets experienced a rise to a
near two-week high on Tuesday, driven by the release of producer prices data
that supported expectations of an interest rate reduction by the Federal
Reserve in September.
Recent data indicates a challenging start to the second half
of the year. Central bank data released on Tuesday revealed a significant
decline in new bank loans in July, reaching a 15-year low. Other key indicators
pointed to a slowdown in export growth and a slump in factory activity,
reflecting the impact of tepid domestic demand on manufacturers.
The economy experienced a slower growth rate than
anticipated in the second quarter, with an increase of 4.7% compared to the
previous year. This sluggish performance is attributed to cautious consumer
behavior and heightened tensions in trade relations with key markets,
indicating a likelihood of sustained economic stagnation.
"The market consensus is expected to shift towards a
growth target below 5%, as the economy showed signs of deceleration in July and
there appears to be a lack of a robust strategy to bolster economic
activity," stated Xu Tianchen, a senior economist at the Economist
Intelligence Unit, which has maintained its growth projection at 4.7% since
March.
On Thursday, China is set to publish a series of activity
indicators. Economists surveyed by Reuters anticipate that retail sales
increased by 2.6% year-on-year last month, up from 2.0% in June, while
industrial production is expected to have grown at a slower pace, and
investment growth is predicted to have stabilized.
Additionally, officials will provide the latest data on new
home prices, which saw their steepest decline in nine years in June, despite
various support measures intended to attract buyers and mitigate an ongoing
property crisis.
Recent credit data revealed that household loans, primarily
mortgages, decreased by 210 billion yuan ($29.37 billion) in July, in contrast
to an increase of 570.9 billion in June.
One of the primary factors contributing to the decline in
consumer spending in China is the significant portion of household wealth,
approximately 70%, that is tied up in real estate. This sector, which has
historically been a key driver of economic growth, is currently facing
challenges and uncertainties.
EXPORTS
One of the few positive developments this year—exports—has
yet to catalyze a more extensive economic recovery, primarily because
manufacturers have been compelled to reduce prices to attract overseas buyers
in light of weak domestic demand.
Additionally, there are indications that global demand is
diminishing.
The official factory managers' survey for July revealed that
producers experienced a decline in export orders for the third consecutive
month. "The situation is entirely dependent on exports," stated
Alicia Garcia Herrero, chief economist for the Asia-Pacific region at Natixis.
"Exports are stagnant, and we have already witnessed
Thailand implementing import tariffs, along with similar actions from Turkey,
Europe, and the United States." "Should we observe a negative trend
in export growth, I believe we will need to revise our projections for 2024,
potentially down to around 4.2%."
It is important to note that following an unexpected
reduction in a short-term interest rate in July, numerous economists are
anticipating further interest rate cuts in China later this year, particularly
if the U.S. Federal Reserve begins to lower borrowing costs starting in
September.
However, given the weak domestic demand and the uncertain
outlook, both households and businesses are hesitant to take on new debt.
"There is certainly a possibility that officials will expedite the announcement of a more definitive plan to stimulate domestic consumption, as they appear particularly concerned about the recent poor domestic demand," remarked Xu from the EIU.