On Monday, China is set to release a burst of economic statistics that will likely reveal that the country's post-pandemic recovery is swiftly evaporating. This will increase concerns that Beijing will need to immediately introduce new stimulus measures to support activity and sluggish consumer confidence.
Following the removal of the stringent COVID-19 regulations, the economy had a solid start to the year. However, recent data indicate a rapid loss of momentum as a result of weak domestic and international demand as well as a lengthy downturn in the country's typically important property market.
According to a survey of economists, the second-largest economy in the world probably only managed 0.5% seasonally adjusted growth during the second quarter of the year compared to the previous three months. Separate statistics for June are anticipated to show that investment, industrial output, and retail sales are still cooling.
Despite latest official moves to overturn some limits to help the economy, some analysts are blaming the "scarring effects" of years of stringent COVID policies and regulatory restrictions on the real estate and technology industries.
Instead of undertaking new investments or purchases in the face of the current high level of uncertainty, cautious consumers and private firms are increasing their savings and settling their debts. Unemployment among young people is at all-time highs.
GDP (Gross domestic product) growth may have been 7.3% in the months of April to June from a year before, compared to 4.5% in the first quarter, according to economists.
The huge decline in activity that occurred last spring, when areas of the nation were placed under crippling COVID-19 lockdowns, would, however, greatly skew that reading.
Data released on Thursday revealed that as global demand shrank more than predicted in June, China's exports dropped more than they had in the previous three years, falling 12.4% year over year.
It's the lowest performance of the year that prices for newly built homes remained unchanged in June. Developments in the property business, which makes up one-fourth of the economic activity, have been slowing down nationally.
In June, producer prices dropped at their fastest rate in more than seven years, while consumer prices appeared to be heading toward deflation, according to figures released earlier in this week.
As indicated by policy experts and analysts, the government is likely to implement additional stimulus measures, including expenditures to pay for expensive infrastructure projects, increased support for consumers, and a loosening of the property policy. However, experts think that a swift recovery is unlikely.
According to a senior bank official, the central bank of China will employ measures including the reserve requirement ratio and medium-term lending facility to combat the problems.
In order to increase the amount of money available for lending while maintaining benchmark rates of lending, analysts anticipate the central bank will reduce banks' reserve requirement ratio by a total of 25 basis points during the third quarter.
The RRR, or the amount of money banks must keep in reserves, was reduced by the central bank in March.
The benchmark rates for lending in China were also reduced in June, for the first time in the previous ten months, by a slight 10 basis points.
However, the central bank will probably be cautious about lowering lending rates any further. According to economists, banks that are currently dealing with margin pressures may be harmed by continued policy easing because private enterprises and families are reluctant to borrow.
Additionally, aggressive easing would encourage further capital flight from China's troubled financial markets and put stress on the yuan, which just fell to its eight-month lowest point.