China: CEWC to elaborate on ‘extraordinary’ stimulus – Standard Chartered

The next CEWC will likely set a pro-growth tone and outline a stimulus plan, in line with the Politburo. The shift to an ‘appropriately loose’ monetary policy stance increases the possibility of positive surprises. That said, declining policy room and concerns about financial stability may limit the size of the stimulus. We expect fiscal policy to do the heavy lifting, with a growing emphasis on boosting consumption, say Standard Chartered economists Carol Liao and Shuang Ding.

Stronger relaxation signals

“The December 9 Politburo meeting sent strong signals of policy easing, raising market hopes for a ‘big-bang’ stimulus package. The shift in monetary policy stance from ‘prudent’ to ‘appropriate’ lax’ and the introduction of an ‘extraordinary countercyclical adjustment’ exceeded expectations, suggesting that the government could set an ambitious growth target for 2025 (probably around 5%). a more proactive fiscal policy, stabilize the housing and stock markets, and increase domestic demand ‘from all aspects’ The markets have reacted positively.”

“We believe the Politburo’s strong tone is part of the authorities’ efforts to use forward guidance to revive market sentiment. While upside surprises from monetary easing and broader stimulus are possible, we maintain our growth forecast by 2025 at 4.5% given the decreasing macroeconomic headroom, the ongoing real estate market correction and increasing external headwinds.”

“We expect the Central Economic Work Conference (CEWC), which is likely to be held later this week, to provide more details on what the Politburo called ‘extraordinary countercyclical adjustment.’ We believe this may include a large increase in the issuance of government bonds, backed by regular market purchases of central government bonds by the PBoC, the new stimulus package is likely to focus more on boosting consumption, a departure from the old stimulus model that relied heavily on. investment. Monetary relaxation “could provide positive surprises, but we do not believe it will be comparable to the 2009 stimulus given the decreasing room for maneuver and concerns about financial stability.”