Economists predict more support but no huge stimulus package

Economists expect to see further supportive measures to bolster the Chinese economy in the second half of 2023, but one massive cure-all package is unlikely.

Following the release of China's official economic data earlier this week, which showed that gross domestic product (GDP) growth in the second quarter surged in year-on-year terms but fell sharply in quarter-on-quarter terms, most economists are sharing their insights and expectations for the second half-year.

Industrial production and fixed asset investment growth quickened in June, but we did not see a clear rebound in activity based on high-frequency data and alternative data, Lu Ting, chief China economist of Nomura, pointed out.

Nomura raised the GDP growth forecasts for both the third and fourth quarter to 4.9 percent each from 4.3 percent and 4.5 percent, respectively, while keeping their below-consensus annual GDP growth forecasts at 5.1 percent for 2023 and 3.9 percent for 2024.

"We do not think today's data will prompt Beijing to step up stimulus measures," Lu said. "We do expect the government to introduce a raft of supportive measures in the second half-year, including two 10-basis-point rate cuts and additional fiscal transfer to local governments."

"We also believe markets should curb their expectations for a fast, cure-all package and instead embrace expectations of a growth slowdown to below 4 percent in 2024," he added.

Hu Yifan, chief China economist at UBS Wealth Management, expected future domestic policy support to continue, but it will be relatively calm and restrained and there will not be large-scale stimulus measures.

It is expected that monetary policy will remain loose, but there will not be excessive flooding of money. Fiscal policy will remain "actively effective," such as tax and fee reductions. Real estate policy may be further relaxed, and there may be a cancellation of low-rent housing to digest some of the stock, among others, she noted.

"After the adjustments in the second quarter, the domestic economic growth will be more stable in the second half of the year, with consumption remaining a major driving force," Hu believed, also expecting robust growth in the automobile industry and rebounds in the health-care industry, and technology sectors as the market recovers and demand increases.

David Chao, Invesco's global market strategist for the Asia-Pacific, excluding Japan, also stated that the economic data in June indicates that most industries are stabilizing, which suggests that the possibility of the government announcing large-scale stimulus measures has declined.

However, it is possible that the Central Political Bureau meeting in late July may announce more stimulus policies, further boosting market sentiment and accelerating the full recovery of economic growth, he added.

Australia and New Zealand Banking Group, meanwhile, expects fiscal policy to pick up the baton in the second half to support growth, with an acceleration of local government bond issuance being the most likely option.

"The possibility of issuing special Treasury bonds is also rising although this is not our base call scenario. A key gauge of policy impact is whether confidence in the private sector and the household sector will be revived," said Betty Wang, senior China economist of ANZ Group.

Lian Ping, chief economist of Zhixin Investment, expects that in the second half, proactive fiscal policies will continue to be strengthened and made more efficient by using multiple policy tools. The expansion will be reasonably controlled and targeted, with a focus on continuity and coordination with other policies.

For instance, tax and fee preferential policies will be further optimized and will continue to relieve pressure on micro entities, reducing the burden of enterprise taxes and fees and increasing fiscal subsidies. Fiscal expenditure in the field of people's livelihood will be expanded as well, he asserted.

As for monetary policy, Lian expected the reasonably loose financial environment to be maintained, with focus on reducing financing difficulties and borrowing costs for enterprises and residents with broad credit, to strengthen targeted financial support.