Don’t expect a China stimulus ‘bazooka’ soon- Morgan Stanley

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Investing.com-- China’s economy stabilized in recent months as Beijing kept up its pace of incremental stimulus and policy efforts, although  Morgan Stanley  (NYSE:MS) analysts said the government was unlikely to ramp up stimulus measures drastically in the near-term. 


Stable purchasing managers index readings for April showed that a recovery in business activity extended into the second quarter, with export demand driving a bulk of this resilience. 


MS analysts said the country was on track to meet the brokerage’s second quarter real gross domestic product estimate of 5.5%. 


But a big miss on retail sales for April, coupled with sluggish inflation figures, showed that the recovery in China’s economy remained largely imbalanced. 


MS expects Beijing to increase “incremental efforts” to increase fiscal spending, limit overcapacity in emerging sectors and support the property market. 


But bigger, nationwide measures to support the economy- particularly the housing market- remained unlikely in the near-term, with incremental support from local governments appearing more likely, MS analysts said. 


“We think housing and fiscal policies are incrementally positive, but don't expect a bazooka in the near term,” MS analysts wrote in a recent note.


Chinese stock markets rebounded sharply over the past two months amid growing optimism over stimulus measures and an economic recovery in the country. The benchmark Shanghai Shenzhen CSI 300 and Shanghai Composite indexes were both trading at 2024 peaks on Monday.


But this rally slowed in recent sessions as data still showed an uneven recovery in the Chinese economy, with sluggish domestic consumption remaining a point of concern. 


Despite recent strength, MS still expects the economy to grow less than government forecasts, with nominal GDP for 2024 expected at 4.5%, below the government’s 5% forecast.

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