Jean MartinChina’s recent endeavors to stimulate its economy have left market observers unimpressed, with many suggesting that more aggressive measures are needed to revive sentiment.
Gradualism in Policy Implementation:
Howe Chung Wan, head of Asia fixed income at Principal Asset Management, believes that Chinese policymakers will gradually address structural issues within the economy.
Despite managing over $540 billion in assets, Wan anticipates no major support measures from policymakers, emphasizing their focus on long-term structural reforms.
Concerns Over Policy Lag:
Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis, criticizes the recent loan prime ratio (LPR) cut by the People’s Bank of China (PBOC) as insufficient and overdue.
Herrero warns of potential risks of policy lag, especially as recent data indicates a decline in headline inflation, necessitating swifter action from the central bank.
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Advocating for Aggressive Monetary Easing:
Chi Lo, senior markets strategist for Asia-Pacific at BNP Paribas Asset Management, underscores the importance of maintaining a significant gap between real interest rates and output growth (“r-g” gap) to sustain economic expansion and alleviate debt pressures.
Lo advocates for continued monetary easing and suggests that failure to do so could result in stunted GDP growth and adverse impacts on corporate earnings and asset prices.
Mitigating Default Risks and Economic Slowdown:
Amid concerns over rising default rates and the broader economic slowdown, Herrero of Natixis emphasizes the necessity of lowering real interest rates to stimulate economic activity and prevent a negative output gap.
With rates currently above equilibrium, Herrero warns of the potential consequences if corrective measures are not promptly implemented.
