Monday, July 12, 2021
Lending is becoming more relaxed
China’s slump in growth is a warning
China’s economy quickly processed the corona shock, and rapid growth followed. But now the recovery is clearly losing momentum – this is likely to be felt worldwide.
China was the first country whose economy recovered rapidly after the corona slump. Other countries followed later. It is therefore not a good sign that economic growth in the second largest economy in the world is slowing down significantly – because that shows where the global economic journey is headed.
China’s growth likely slowed to about 8 percent year-over-year in the second quarter and could weaken to just over 6 percent in the third quarter and as much as 5 percent in the final quarter of 2021. Wang Yiming, a member of the monetary policy committee of the People’s Bank of China (PBoC), said in an interview with state media, preparing the public for official data, which will be released on Thursday.
To put it into perspective: China’s economy had grown by more than 18 percent in the first quarter – the year before the pandemic had caused a severe slump. It was clear that this pace could not be sustained. But the strength of the braking comes unexpectedly. Economists generally assume that growth will continue. Exports and real estate investment are still the mainstays of the economy, while the recovery in consumption and investment in manufacturing is still sluggish. As China’s vaccination program advances, however, consumption should gain more momentum, it is said.
But China’s central bank last week gave the banks more leeway for lending – a clear sign that the PBoC wants to give the economy a bigger boost. As of Thursday, banks will have to hold less capital than minimum reserves. This should free up around one trillion yuan (equivalent to almost 130.4 billion euros) in liquidity.
“Peak of growth passed”
In the next few days, China will not only publish figures on economic growth, but also on its trade balance, retail sales and industrial production. Given the sudden easing of monetary policy, it is expected to be rather unpleasant. “Expectations about China’s outlook have clouded over the past month due to some disappointing partial data, which was exacerbated by the fact that post-pandemic growth peaked past the pandemic recovery,” said analysts at Australian bank Westpac.
The Munich-based Ifo Institute recently cut its growth forecast for Germany for this year to 3.3 percent – mainly due to bottlenecks in the delivery of preliminary products such as chips for the automotive industry. According to the Ifo experts, the economy could reach the pre-crisis level at the beginning of next year. You are therefore more pessimistic than Federal Minister of Economics Peter Altmaier, who recently announced a plus of up to 4 percent. In addition, Ifo boss Clemens Fuest warned of a setback in the economic recovery if the corona infection numbers rise sharply again because of the new delta variant.
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