Stimulative measures to date—including modest cuts in policy and mortgage rates and the amount of cash that banks must hold in reserve; increased credit support to small businesses; and tax cuts, rebates, and infrastructure spending—fall short of levels needed to produce policymakers’ growth target, according to Vanguard’s analysis. We believe that concerns about financial stability will continue to limit stimulus, leaving the growth target vulnerable.
A significant easing of what had been strict COVID restrictions in Shanghai, China’s largest city, on June 1 is a positive sign, but the recovery is likely to be weaker than that which followed lockdowns in 2020.
“Although May is likely to be the trough in economic activity in China, we have tempered our expectations for a strong growth rebound in the second half of the year,” said Maximilian Wieland, a Melbourne-based economist and lead researcher on the forthcoming paper. “Structural factors, including a weak labor market and business confidence, the specter of renewed restrictions amid new COVID cases, and slowing global growth will limit the pace of recovery.”