HSBC says China will need more aggressive easing measures to hold growth

January 20, 2015

HONG KONG – Commenting on China’s full-year 2014 growth performance, HSBC says it believes further easing measures will be needed to sustain economic momentum.

“The property market is still slowing amidst tight funding conditions and cooling investment. The improvement in sales, which has been sporadic so far, will take time to become more broad-based. Therefore it will likely take us until mid-2015 for property to become a less negative drag,” HSBC says.

“Meanwhile, all measures of inflation (CPI, PPI, GDP deflator) are now at multi-year lows, a problem recently exacerbated by declining commodity prices. We estimate that the GDP deflator slowed to a new multi-year low in 4Q2014.These, alongside signs of labour market slackness (such as the slowdown in wage growth) point to a negative output gap due to insufficient demand.

“We believe more aggressive easing measures, in the form of another 50bps cut to the policy rate and 150bps cut to the reserve ratio, as well as more growth-supporting reform measures, will be needed in coming months to anchor domestic demand and sustain growth.” www.hsbc.com (ATI).