Expert: Rebound in H2 expected

China's economy is expected to steadily rebound in the second half, thanks to renewed stimulus efforts and broadening recovery in jobs and consumption, said Morgan Stanley.

Robin Xing, chief China economist at Morgan Stanley, said while the latest economic indicators offer a snapshot of downward pressure facing the broader economy, China's recovery is still underway and the country has the capabilities and conditions to deal with the challenges.

Xing told the media on Monday that the weakening economic indicators point to further challenges ahead, shoring up the case for policymakers to take more steps to stabilize growth.

He expects China to step up more stimulus measures to safeguard the recovery in the near term, with possible measures including relaxation of home purchase restrictions in first-tier and second-tier cities, 1 trillion yuan ($140 billion) in additional infrastructure support, more targeted consumer incentives in fields like new energy cars as well as more efforts to step up fiscal policy support.

Data from the National Bureau of Statistics showed that the official purchasing managers index for the country's manufacturing sector fell to 48.8 in May from 49.2 in April, below the 50-point mark that separates growth from contraction. In May, China's exports witnessed a 0.8 percent year-on-year decrease, according to the General Administration of Customs.

Against that backdrop, Xing highlighted the necessity for more near-term stimulus policies, especially in terms of fiscal stimulus and the property sector, to shore up the economy. And the focus should also be placed on supporting the development of the private sector and boosting the confidence of private enterprises, as the private sector will play a vital part in stabilizing employment.

Xing's views were also echoed by Laura Wang, chief China equity strategist at Morgan Stanley, who highlighted the need for an optimal combination of macroeconomic policies to shore up the economy, which will significantly boost market confidence.

Citing a recent survey by Morgan Stanley, Wang said domestic enterprises had a strong willingness to increase their spending on items like advertising and IT, while they were hesitant about long-term investment in scaling up their production.

Morgan Stanley calculated that, at an annual rate adjusted from seasonal variations, China's GDP growth will likely expand by 6 percent in the second half after a hiccup in the second quarter, supported by renewed stimulus measures to sustain investment growth and a gradual and steady gain in service consumption from broadening job market recovery.

Looking into the full year, it is estimated that China's GDP will rise 5.7 percent year-on-year, up from 3 percent in 2022, according to a newly released report by Morgan Stanly.

Defying market concerns that China could enter a deflationary period, Morgan Stanley expects the headline consumer price index to rise to 1.3 percent year-on-year in the fourth quarter. Meanwhile, China's producer price index has likely bottomed out, given expectations of China's growth re-acceleration from the third quarter.