China Plans $230 Billion in Stimulus As Economic Outlook Worsens

August 18, 2022

Chinese state media is reporting that local governments could sell more than $229 billion in bonds that would fund infrastructure investment and shore up budget gaps as the nation’s economic slump worsens.

China saw a raft of bad economic news this week. Covid cases hit a three-month high, which could lead to further lockdowns. Some factories have already been forced to shut down as heat waves have led to energy shortages in some regions. Recent economic data suggests that domestic spending is in a slump, and property sales continue to fall, worsening a major downturn in the real estate sector.

On the back of all this bad news, economists are slashing their forecasts for the nation’s GDP growth. Goldman Sachs lowered its GDP projection from 3.3% to 3%, while Nomura lowered theirs even further, now expecting GDP growth of just 2.8% this year, well below Beijing’s target of 5.5%.

The recent spate of negative economic data prompted Beijing to unexpectedly cut key interest rates early in the week, but the relatively small size of the cut has prompted calls for additional monetary easing and a reduction of bank reserve requirements.

Economists from Nomura warn that China’s growth in the second half of the year is likely to be “significantly hampered” by the Covid Zero policy, as well as a “deteriorating property sector, local governments’ worsening fiscal conditions, and a likely slowdown in export growth.”

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