The Dynamics of China’s Economy and Potential Stimulus Measures
Stabilization and Incremental Stimulus
China’s Resilient Business Activity
The Chinese economy has shown signs of stabilization in recent months, buoyed by Beijing’s consistent efforts in incremental stimulus and policy measures. Despite this positive trend, analysts at Morgan Stanley caution against expecting a significant ramp-up in stimulus measures in the immediate future.
Export-Driven Recovery
April’s stable readings indicate that the recovery in business activity has extended into the second quarter, with export demand playing a significant role in driving this resilience. Morgan Stanley analysts project that China is on track to meet their second-quarter real gross domestic product estimate of 5.5%.
Imbalanced Recovery
However, a notable miss on some economic indicators for April and sluggish domestic consumption suggest that the Chinese economy’s recovery remains largely imbalanced. In response, analysts anticipate Beijing will implement incremental efforts to boost fiscal spending, address overcapacity in emerging sectors, and provide support to the property market.
Future Stimulus Measures
While localized support from governments is likely, nationwide measures to bolster the economy, particularly the housing market, are not expected in the near term. Morgan Stanley analysts suggest that incremental support for housing and fiscal policies will continue but caution against expecting drastic interventions in the short term.
Market Trends and Concerns
Chinese stock markets have rebounded in recent months, fueled by optimism surrounding stimulus measures and economic recovery. However, concerns linger over an uneven economic recovery and sluggish domestic consumption, slowing the recent market rally.
Despite recent improvements, Morgan Stanley anticipates the economy will fall short of government forecasts, with a nominal GDP growth of 4.5% in 2024, below the official 5% projection.
