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China’s cautious consumer confidence is dampening recovery, says ADB

Fears are growing that China’s economy is tethering on the verge of deflation after yet another slate of underwhelming economic data July 17 provided more evidence that the stall in growth momentum may turn out more severe without more meaningful policy intervention.

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China’s cautious consumer confidence has been a “a dampener” for its fragile recovery, according to Albert Park, chief economist at the Asian Development Bank.   

On Monday, the world’s second largest economy reported second quarter GDP numbers that largely missed expectations.

China’s economy grew 6.3% from a year ago in the quarter ending June, while retail sales for June rose by 3.1%, fueling concerns its post-Covid growth is faltering.

“What we really hope is that China’s consumers and businesses will regain confidence to start spending more and to invest more,” Park told CNBC’s “Squawk Box Asia” on Wednesday.

“We’re seeing their caution in this respect really being a dampener that’s causing the sluggish recovery in China.”

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Last month, the People’s Bank of China cut its key policy rate for first time in 10 months as economic recovery continued to lose steam.

“The central bank lowered interest rates recently in an effort to help stimulate the economy, but they have to be careful,” cautioned Park. “They’ve been a pretty disciplined in trying to deleverage the economy, in terms of debt levels.”

But he added the country still has “very elevated debt levels” after several years of the pandemic. China removed its stringent Covid restrictions late last year.

Growth targets

ADB, in its outlook report released on Wednesday, said China was projected to grow 5% this year —unchanged from the April forecasts. 

“Growth in manufacturing investment is expected to moderate in line with cooling exports, while that of infrastructure investment is likely to remain stable,” the bank said of China. “Monetary and fiscal policies will continue to support economic recovery, particularly to boost domestic demand.”

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However, the bank cut next year’s economic growth forecast for developing Asia, while maintaining its projection for 2023.

The ADB’s lowering of its 2024 estimate to 4.7% from 4.8% reflects a global outlook that is “dimmed by lagged effects from interest rate hikes.” But the bank said the region is still projected to grow 4.8% in 2023, unchanged from its April forecast, the bank said.

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