Standard Chartered has painted a rosy outlook for China’s second-quarter economic growth, citing the country’s stimulating measures and its resilient consumer market.
China’s gross domestic product growth this year is projected at around 6.5 percent – well above a market consensus of 6.2 percent – according to Ding Shuang, Greater China and North China chief economist at the London-based lender.
According to the bank’s research report on global economic prospects for the third quarter, China is on track to becoming a consumption-led economy with two-thirds of its GDP growth coming from the consumption sector despite its ongoing trade stand-off with the United States.
Another rationale behind Standard Chartered’s projections is that the condition for an interest-rate cut in China has almost matured due to the economy’s downside risks, as well as a producer price index that’s teetering on the brink of deflation.
Greater China and North China chief economist,
“We expect consumer spending to stay resilient in the second half, supported by individual income tax cuts and a stabilizing housing market,” the report said.
The People’s Bank of China, at the same time, would wield its multiple monetary tools to guarantee economic growth as it’s expected to cut banks’ reserve requirement ratio by 100 basis points in the second half of the year, and reduce its medium-term lending facility rate.
Another rationale behind Standard Chartered’s projections is that the condition for an interest-rate cut in China has almost matured due to the economy’s downside risks, as well as a producer price index that’s teetering on the brink of deflation, according to Ding.
He explained that the potential for an impending US Federal Reserve rate cut has given China another reason to slash its own.
Standard Chartered expects the Fed to trim interest rates twice this year, with a 25-basis-point reduction possibly late this month, followed by a similar cut by yearend.
On the other hand, the downward risks still weigh on the market as the Sino-US trade row remains cloudy, which could eventually put pressure on China’s overall economic growth in the second half.
Import-and-export activities contributed to 1.3 percent of China’s 6.3 percent growth in the first half of 2019 but, with the outlook of the trade negotiations continuing to weigh on business and cloud sentiment, a 1.3 percent contribution from imports and exports would be hard to sustain in the second half.
This means the likely lackluster performance from overseas demand should be offset by an even more robust domestic demand for the rest of the year, said Ding.
Separately, Standard Chartered has revised its 2019 GDP target for Hong Kong down to 1.4 percent from 2.2 percent, citing weak retail sales and declining external trade.
The Hong Kong Retail Management Association said it expects the city’s retail sales to suffer a double-digit drop if large-scale protests continue.
The SAR’s retail sales have been slipping for four straight months. In the first five months of this year, retail sales fell 1.8 percent year-on-year, government data showed.
Additionally, Hong Kong is likely to see fewer trade flows passing through as it had faced a “double whammy” of falling exports to both the US and the Chinese mainland, according to Standard Chartered’s research report.
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