S&P Global Ratings, in its latest report, warned that China’s economic recovery from the coronavirus pandemic could falter, in the face of rising real rates.
Key takeaways
“An unbalanced recovery, weak private demand and excessive market optimism have combined to drive real rates up, increasing debt-servicing burdens even as financial conditions tighten.”
“A climb in real interest rates may throw China’s recovery off course just as it should be gathering steam.”
“Those have relied on “extraordinary policy support” and that consumer activity, the service sector and private firms were lagging.”
“A recent rise in short-term repo rates indicated that policy-makers are comfortable pulling back some monetary stimulus.”
“Until China’s consumers start spending and private firms pick up investment, it’s too early to say the recovery is self-sustaining and can live with much less stimulus, including higher real interest rates.”
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