Fitch: China slowdown is triggering policy recalibration

The recent slowdown in the Chinese economy has prompted the policymakers to make some adjustments to their policy setting to stimulate the economic recovery once again, Fitch Ratings said in its latest report on Monday.

Key takeaways

“The country has sustained robust growth during much of the coronavirus pandemic, but headwinds have recently emerged on numerous fronts, challenging our baseline forecast that China’s economy will grow by 8.4% this year and 5.5% in 2022.”

“Threats to the outlook became evident after efforts to extinguish a modest wave of Covid-19 cases in July-August resulted in widespread - albeit temporary - mobility restrictions. These events have coincided with a retrenchment in the property sector, a key growth driver for China’s economy, where construction has slowed partly as a result of policies seeking to limit leverage among developers, curb speculative housing purchases and contain property price inflation.”

“Other parts of the economy appear unlikely to make up for the weakness in investment in the near term.”

“Responding to the shift in growth momentum, Chinese policymakers are no longer signalling that they intend to gradually normalise economic policy settings. “

“The case for macro policy easing may also have been reinforced by recent regulatory developments, such as a crackdown on internet-oriented technology enterprises and a more selective approach to supporting government-related entities, which have unsettled the confidence of many investors.”

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