Cyclical Recovery In China Unlikely Without Additional Stimulus Efforts: Capital Economics

A meaningful cyclical recovery seems increasingly unlikely in the absence of a significant increase in stimulus efforts, economists at Capital Economics said.

Official data released over the weekend showed that industrial production posted a slower annual growth of 4.5 percent in August after rising 5.1 percent in July. Likewise, retail sales growth decelerated to 2.1 percent from 2.7 percent. During January to August period, fixed asset investment was up 3.4 percent, which was weaker than the 3.6 percent increase in January to July.

Although the service sector is still faring reasonably well and the fiscal support in the pipeline should help to stabilize wider growth over the coming months, additional stimulus measures are needed for a meaningful cyclical recovery, Julian Evans-Pritchard and Zichun Huang at Capital Economics said.

They observed that the manufacturing sector has come under strong pressure, while there are some signs of downward pressure starting to moderate on construction activity.

Further, economists said they expect a pick-up in infrastructure spending on the back of the recent acceleration in government bond issuance.

“The best that policymakers can probably hope to achieve with their restrained approach to stimulus is to prevent growth from slipping further, at least in the near-term,” they said.

Beijing aims to achieve around 5.0 percent growth this year. In the June quarter, the second-largest economy expanded only 4.7 percent after rising 5.3 percent in the preceding period.