Economy tipped to pick up in second half of year
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Analysts at Standard Chartered Bank expect China's economy to pick up in the second half of the year on the back of lower interest rates and increased spending on infrastructure.
'The economy will not come roaring back, but it will at the very least stabilise and should regain a little bit of momentum,' the bank says.
The National Bureau of Statistics said the gross domestic product expanded 7.6 per cent in the second quarter from a year ago, the weakest quarterly performance in three years, and 1.8 per cent quarter-on-quarter.
'Actually, according to indicators like electricity production, diesel throughput and feedback from clients, the quarter was probably even weaker, we guess, nearer 7 per cent rather than 8 per cent,' senior economist Kelvin Lau said yesterday.
'However, as measures to protect the downside have been implemented, with lower interest rates and more infrastructure spending, we expect a mild recovery in the third quarter.'
According to Lau, there are signs growth stabilised in June, led by growth in fixed-asset investment, which accelerated to 21 per cent from 20 per cent in May.
'Growth in production of cement and steel products accelerated in June,' Lau said. 'Both look like they may be bottoming out in year-on-year terms,' he added, because 'investment from the state budget and bank loans continued to improve in June'.
Standard Chartered also expects the amount of offshore yuan market deposits in Hong Kong to grow in the second half, reaching 600 billion yuan to 650 billion yuan, as many more international companies are becoming interested in settling trade in yuan.
Yuan deposits stood at 554 billion yuan in May, up 0.3 per cent from April, the first rise after five straight months of decline, Lau said.
The growth in the offshore deposit base will support so-called dim sum bonds, for which Standard Chartered said it expected 'demand to remain strong'. It said bank certificates of deposit issuance continued to dominate the yuan-denominated bond market, as Chinese banks found it cheaper to borrow offshore than onshore.
Regarding credit on the mainland, Standard Chartered estimated there will be three more cuts in the reserve requirement ratio (RRR), a level of reserves banks must hold, of a half percentage point each , and one more interest rate cut of a quarter of a percentage point this year.
The People's Bank of China has cut the RRR three times since November, and recently cut interest rates twice in a month for the first time since 2008.
'The days of double-digit growth for China are over, but that is fine,' Lau said.
Standard Chartered analysts say mainland growth in the second quarter was more likely about just this much