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  • Saanya Amalean

Market Open Musings >>> Is the V- shaped recovery falling?

China's V-shaped economic recovery since the Covid-19 pandemic is slowing, a sign for countries around the world to take caution on how long-term their own recoveries might prove to be.

The outlook is further perpetuated by a call to action taken by the People's Bank of China to cut the amount of cash that banks must hold in reserves in order to boost lending. The move to reduce banks' reserve requirement ratio (RRR) is one mechanism to ensure that China's post-pandemic recovery plateaus instead of heading into a downward spiral.

“China’s ‘first-in, first-out’ status from Covid-19 could also influence market expectations that if China’s economy is cooling now, others will soon follow.” said Rob Subbaraman, head of global markets research at Nomura Holdings Inc. Data to be released this Thursday is expected to show a moderation and ease in growth from the second quarter compared to the first quarter.

The falling recovery has arrived sooner than anticipated and suggests that factory inflation has likely peaked as well, thus commodity prices could moderate further.

Domestically, China's retail sales have remained soft. Although the virus appears to be under control, measures have been taken to control its spread. Even as the People's Bank of China has pledged its support to SMEs, there doesn't seem to be a clear sign of a reversal in the stringent stimulus approach authorities have taken so far.

This downturn only suggests that all other global economies will be close to follow, much sooner than expected.

Published 12th July 2021 | 8:01 pm

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