China: Easing case strengthens on weak PMIs – Commerzbank
Commerzbank’s Dr. Henry Hao argues that two months of broad Purchasing Managers' Index (PMI) contraction leave China’s Gross Domestic Product (GDP) growth tracking below the official 4.5%-5.0% target, intensifying pressure on Beijing.
Commerzbank's Dr. Henry Hao contends that the lack of Purchasing Managers Index (PMI) growth for the past two months suggests China's GDP growth is falling below the desired 4.5%-5.0% target, increasing pressure on Beijing. Fiscal spending is gradually decreasing from austerity measures, with coordinated measures expected later in the year.
The People's Bank of China (PBoC) indicates a moderately loose policy and potential Reserve Requirement Ratio (RRR) and rate cuts, with pre-emptive easing before year-end more probable. Two months of PMI contraction puts more emphasis on Beijing to provide more substantial policy support to keep GDP growth from slipping further below the official range.
Government spending contracted 4.4% year-over-year in July, a slight improvement from June's 11.9% decline, indicating a gradual reduction in austerity, which has negatively impacted activity. The People's Bank of China has affirmed a commitment to moderately loose policy and plans to enhance counter-cyclical adjustments, signaling a potential increase in the use of overnight reverse repo operations to manage liquidity.
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