China: Still room for further monetary policy accommodation – UOB
UOB Group’s Head of Research Suan Teck Kin, CFA, and Economist Ho Woei Chen, CFA, assess the recent stimulus measures in China.
Key Takeaways
The lukewarm stimulus measures may have contributed to the lack of economic recovery in China, but there are concerns that the economy could well be facing a liquidity trap or balance sheet recession risks that undermine monetary policy’s effectiveness.
However, our view is that the underlying issue is the weak consumer and business confidence which continues to hold back consumption and investment despite the various forms of stimulus measures. As such, this calls for stronger fiscal policy and specifically, measures that target the property demand and local government debt resolution.
We also believe that there is further room for monetary policy easing as real interest rate in China has remained high due to the current disinflation trend. Furthermore, we note that there remains significant scope for private consumption to grow given its dual circulation strategy and planned loosening of China’s hukou household registration system.