China’s fixed-asset investments and industrial production were very weak in August while retail sales growth was moderate. Even Premier Li Keqiang has said that 6% of GDP growth will be hard to achieve. As such, we are cutting our growth forecasts for this year and expect more stimulus to come, writes Iris Pang – Greater China Economist at ING.
“Due to the expected further damages from the trade and technology wars, we are revising our 2019 GDP growth forecast to 6.0%, and to 5.7% YoY and 5.8% YoY for 3Q19 and 4Q19, respectively. Our previous forecasts were 6.3% for 2019 and 6.1% YoY and 6.3% YoY in 3Q19 and 4Q19.”
“Fiscal stimulus policies will include infrastructure projects as well as projects on R&D to enhance China’s self-reliance on its technological advancement. These two policies do not only provide investment growth to support GDP but will also stabilise the job market, which in turn stabilises retail sales.”
“Monetary policy action will include more cuts to the reserve requirement ratio in 4Q19 (0.5 percentage points to 1.5 percentage points), and interest rate cuts to the 7D reverse repo, which will then lower interest rates on the MLF (medium lending facility). This will pass through to a lower LPR (loan prime rate).”