China’s Economic Recovery Signals Hope Amidst Concerns of Japan-like Stagnation

China’s recent economic slowdown, attributed to the premature withdrawal of policy support, does not indicate an impending Japan-style stagnation, according to Macquarie’s Chief China Economist, Larry Hu. While the country has faced disappointing economic data and record-high youth unemployment, Hu believes that policymakers will continue to adopt accommodative measures, leading to a broader recovery.

The report suggests that China’s current situation is temporary, and as the recovery strengthens over time, the economy will enter an upward spiral with increased demand and improved confidence. Hu acknowledges that this spiral is cyclical rather than structural and believes that historical patterns indicate that concerns of Japanification will diminish once the recovery becomes more entrenched.

Although the Lunar New Year holiday has only passed a few months ago, making long-term predictions challenging, China’s property sector has exhibited signs of a stalled recovery. Sales data from the first and second quarters indicate conflicting trends, making it difficult to extrapolate the future trajectory. Hu cautions against drawing extreme conclusions and suggests that the reality may lie somewhere in between the two scenarios.

Overall, while challenges remain, China’s economic recovery shows promise, with expectations of a broader rebound in the near future. By maintaining accommodative policies and addressing key issues such as youth unemployment and consumer demand, China aims to avoid the prolonged stagnation experienced by Japan, paving the way for sustained growth and economic stability.