Calls for More China Stimulus Grow Louder as Economy Contracts
GDP shrank 6.8% in the first quarter from a year ago, as the coronavirus outbreak shut down large parts of the economy
(Bloomberg) -- The first contraction in decades for China’s economy has increased expectations that policy makers will step up stimulus, market watchers say.
Gross domestic product shrank 6.8% in the first quarter from a year ago, as the coronavirus outbreak shut down large parts of the world’s second-largest economy and dimmed the global outlook. However, other data showed factory output falling 1.1% in March, an improvement from the first two months of the year. Market reaction was mild as investors digested the numbers.
Here’s what analysts and investors are saying about Friday’s data release:
Zhang Yankun, a fund manager with Beijing Hone Investment Management Co.
Everyone knew that the first quarter would be ugly so the market had fully priced in that risk before the data release. Investors are now looking beyond that and expecting more stimulus policies at home to boost domestic consumption. We’ll consider adding some tourism and building materials stocks that’ll likely benefit during the course of an economic recovery.
Xing Zhaopeng, an economist at Australia and New Zealand Banking Group in Shanghai:
Looking ahead, we expect the economy to be faced with pressure to contract again in the second quarter. The central bank will inject liquidity in a targeted manner.
Shine Gao, a fund manager at Taicheng Capital Management Co.
We’re giving more weight to second quarter numbers, which will probably shed more light on the actual impact of dampened demand. Lots of first quarter numbers, including earnings, do not lend much insight into the real impact because much of the orders were backlogged from last year.
Becky Liu, head of China macro strategy at Standard Chartered Plc.
The key is that GDP was not much worse than expected, which removed some fear of a free fall of the economy into a much deeper contraction. Policy makers will continue with both fiscal and monetary policies to support further recovery of the economy. We expect the government to soon announce additional local government project bond quota to speed up infrastructure investments near term.
Frances Cheung, head of Asia macro strategy at Westpac Banking Corp.
Considering the wide range of forecasts, first quarter GDP data was not a big miss. The silver lining is March industrial production.
Chaoping Zhu, J.P. Morgan Asset Management global market strategist.
Stability in employment might become the top policy priority for this year. Against this background, the PBOC might continue to follow a data-driven approach in its policies, and have further cuts to policy rates and required reserve ratio when economic data reveals a worsening outlook.
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With assistance from Bloomberg