On track: An employee works on an aircraft at the Airbus SE plant for passenger jets in Tianjin. With an estimated 5.6% full-year growth rate, some analysts believe China will likely meet its preset annual growth target of around 5% in 2023. — Bloomberg
SHANGHAI: China’s consumer inflation remained flat while its factory-gate prices dropped further in June, indicating the still-weak demand and highlighting the necessity for more steps to expand effective demand and boost market confidence, analysts say.
Despite rising concerns over the weakening momentum of the post-pandemic recovery, analysts believe the country has the capability to achieve its gross domestic product (GDP) growth target of around 5% in 2023.
They said the growth will mainly be fuelled by the improvement in domestic demand amid stronger policy support in the second half of the year.
China’s consumer price index (CPI), the main gauge of inflation, remained unchanged from a year earlier in June after a 0.2% increase in May, data from the National Bureau of Statistics (NBS) showed on Monday.
The producer price index (PPI), which gauges factory-gate prices, was down 5.4% in June from a year earlier after a 4.6% year-on-year (y-o-y) contraction in May, the NBS said.
Zhou Maohua, an analyst at China Everbright Bank, said the flat consumer prices are attributable to declining prices of commodities such as energy and raw materials, still-weak demand and abundant market supply.
When it came to the continuous fall in producer prices, Zhou said it was mainly due to declining commodity prices and the high comparison base in the previous year.
He added that the PPI may gradually improve with the recovery in demand and stronger policy support to boost domestic demand.
After the CPI increased by 2% in 2022, China set an annual consumer inflation target of around 3% for 2023.
Warning of challenges from a cloudy global outlook, the scarring effects of the Covid-19 shock and the existing structural issues, Guan Tao, global chief economist of BOC International, said it is advisable for policymakers to step up macroeconomic policy support.
This includes proactive finnacial policies and structural monetary policy tools, to broaden the economic recovery, he added.
“The ultralow inflation reading lends support to our view that the People’s Bank of China is likely to implement two more rounds of policy rate cuts of 10 basis points each and another 25-basis-point cut to the reserve requirement ratio over the rest of the year,” said Lu Ting, chief China economist at Nomura.
“Looking ahead, even taking into account a potential rise in service inflation as a result of the summer holiday season, we expect the CPI to dip 0.5% y-o-y in July, partly due to a high base,” he said.
“On producer prices, we expect the PPI to decline 4.5% y-o-y in July, mostly due to a lower base.”
In light of the latest inflation readings, other recent developments regarding China’s broad economy and the lukewarm policy response so far, Lu said his team is further lowering its CPI and PPI forecasts for both 2023 and 2024.
For 2023, Lu said his team now expects the CPI to grow at 0.3%, down from the previous forecast of 0.5%.
The team revised the PPI forecast from the previous 2.7% to a 3.2% drop in 2023.
China’s economic growth data for the second quarter is scheduled to be released on July 17.
Gross domestic product (GDP) growth is estimated to be higher than that in the first quarter due to the lower base effect and the continued recovery trend, followed by steady growth in the second half of the year, analysts said.
Guan Tao said his team estimated that the second quarter GDP growth rate may hit 7.6%, followed by an over 5% growth rate in the second half of the year. — China Daily/ANN
