China to loosen as economic growth is tipped to surge in the west
The People's Bank of China headquarters in Beijing
Rising vaccination rates across the world have prompted ratings agency S&P Global to upgrade its 2021 global economic growth forecast.
The agency now expects global growth to hit 5.9%, foreshadowing improved economic conditions across the major economies during the remainder of the second half of the calendar year.
“Owing to a strong Q1 and faster opening than anticipated, we have revised global growth higher by 40 basis points from 5.5 per cent to 5.9 per cent,” S&P chief economist Paul Gruenwald told the Australian Financial Review.
Mr Gruenwald said the revised growth forecast is a result of improving economic conditions in The US, Europe and Latin America. However, the ratings agency thinks growth in China and the Asia region could lag in the coming months.
But China could loosen to boost growth
The resurgence of the COVID-19 Delta variant in the Asia region is likely to weigh on growth in the second half of the year, while in China the Typhoon season threatens to further exacerbate supply chain issues.
However, relative to the US, China has maintained a tight monetary and fiscal policy stance since the onset of COVID-19, so Beijing has the dry powder available for it to loosen to boost the nation’s economy.
“On economic fundamentals, signs of a notable economic slowdown have emerged (in China), and I expect policymakers to fine-tune the macro-economic policy, currently neutral but with a loosening bias, in an pre-emptive way to counter the headwinds,” said Shanghai-based Hwabao Trust economist Nie Wen in an interview last week.
“If growth keeps sliding, the government might even roll out quantitative measures.”
Jefferies‘ head of China FIG research, Shujin Chen also expects an expansionary policy move by the People’s Bank of China within months.
“We actually expect more loosening from the Central Bank in the second half… Basically the economic growth has been slowing down and we expect more stimulus policy from both fiscal policy and also monetary policy,” Ms Chen told CNBC.