How does China face potential inflation?

According to economists at Commerzbank, China’s economic recovery is losing steam. According to April’s economic activity data, the manufacturing sector weakened as consumer spending slowed, far below market expectations, after a strong recovery early in the year.

Bundesbank analysts have suggested that China’s policymakers may need to maintain or even intensify monetary stimulus efforts, but the fundamental question is how long will those efforts continue? It will take some time for the new credit to reach the economy.

The report said that cutting further lending rates might not necessarily help support China’s economy, but cutting interest could indicate further easing on the position of the People’s Bank of China, so that might be a meaningful step to take.

In this regard, economists have continued that further policy support will greatly help, yet the key to economic recovery lies in the private sector’s confidence.

In previous estimates, experts from the British Investment Bank giant Standard Chartered revised their forecast for China’s rate of economic growth and inflation, expecting China’s core inflation to rise to more than 2% year-on-year by the end of 2023 as the economic recovery, which is lower than their previous forecasts, continues as a result of the economic recession and global slowdown.

While analysts are likely to rebound to 5.8% or higher in 2023, our estimate is that GDP will remain below trend by the end of 2023, even if the negative production gap narrows.