The People’s Bank of China (PBOC) pumped ¥1.2trn (£130bn) of extra liquidity into money markets on Monday. Banks have been told not to call in loans made to companies in Hubei, the province at the centre of the outbreak. Annualised first-quarter growth could sink as low as 4.5%; in 2019 GDP rose by 6.1%.
The new stimulus is limited for now. It is aimed at keeping the financial system running and offering targeted help to affected sectors and regions, say Chang Shu and David Qu of Bloomberg Economics. But once the virus is contained authorities are likely to shift towards a more general push to revive growth.
What would a new stimulus look like? Analysts are banking on “looser monetary policies to stimulate demand, more subsidies to bolster struggling firms, and a weaker renminbi to goose exports”, write Keith Johnson and James Palmer for Foreign Policy. The latter measure would enrage Donald Trump, who has accused Beijing of currency manipulation. Add in the fact that disruption due to the coronavirus will encourage US firms to redesign their Asian supply chains and the outbreak will “only accelerate” the ongoing “decoupling” of the US and Chinese economies.
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Asset managers are already positioning themselves for a new round of stimulus, says Michael Mackenzie in the Financial Times. As well as boosting emerging market equities, any Chinese easing could “move the needle for the global economy”. But “wait and see what kind of stimulus arrives from China” before piling in. It remains to be seen whether all this talk of “buying the dip” is just short-term trading chatter, or whether it marks the start of a brighter period for cyclical stocks.
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