China’s official manufacturing PMI has indicated a second consecutive month of contraction in June, with the non-manufacturing PMI also dropping to its lowest reading of the year. Despite this, analysts at UOB Group have forecasted a 5.1% year-on-year GDP growth for China in the second quarter of 2024.
In order to prevent the economic recovery from stalling, the Chinese authorities are expected to increase the implementation of proactive fiscal measures, especially focusing on consumption and the development of high-tech growth drivers. The upcoming third plenum on 15-18 July will concentrate on the reform of the economic system, although there is little anticipation for additional stimulus measures.
The Caixin manufacturing PMI has outperformed once again by edging higher, providing a glimmer of hope amidst the overall contraction in the official PMI readings. The forecast for GDP growth in the second quarter remains positive at 5.1% year-on-year, with expectations for the 1-year loan prime rate to fall to 3.20% by the end of the fourth quarter of 2024.
Maintaining our forecast for the 5-year LPR to stay at 3.95% for the remainder of 2024, UOB Group analysts also see the possibility of a 50 basis points cut to the reserve requirement ratio in the second half of 2024. The overall aim is to support economic growth and prevent any further stalling in the recovery process.
Despite the challenges indicated by the recent PMI readings, there is optimism that China’s economy will continue to show resilience and growth in the coming months. With a focus on proactive fiscal measures and the development of high-tech industries, the Chinese authorities are working to ensure a stable and sustainable recovery in the midst of global economic uncertainty.
The upcoming third plenum in July will provide further insight into the future economic reforms and strategies planned by China, with expectations for continued support towards consumption and high-tech innovation. By staying on track with fiscal policies and potential interest rate cuts, China aims to maintain its economic momentum and drive towards long-term growth and stability.
