China: The third plenum is set to focus on economic reforms – UOB Group

China’s official manufacturing PMI remained in contraction for the second consecutive month in Jun while the non-manufacturing PMI slipped to its lowest reading this year. UOB Group macro analysts set their forecast for 2Q24 Chinese GDP growth is at 5.1% y/y.

China to prevent the economic recovery from stalling

“China’s official manufacturing PMI remained in contraction for the second consecutive month in Jun while the non-manufacturing PMI slipped to its lowest reading this year. However, the Caixin manufacturing PMI outperformed again as it edged higher.”

“To prevent the economic recovery from stalling again, the authorities are expected to step up the implementation of earlier announced proactive fiscal measures, particularly on consumption and developing its high-tech growth drivers. The third plenum on 15-18 Jul will focus on the ‘reform of the economic system’ but there is little anticipation for additional stimulus measures.”

“Our forecast for 2Q24 GDP growth is at 5.1% y/y. We maintain our forecast for the 1Y loan prime rate (LPR) to fall to 3.20% by end-4Q24 (current: 3.45%) while the 5Y LPR may stay on hold at 3.95% through the rest of 2024. There is also a possibility of another 50 bps cut to the reserve requirement ratio (RRR) in 2H24.”