Growth in China's fixed-asset investment slipped below 10 percent for the first time since 2000 in January-May as a boost from record credit growth seemed to be already fading, putting expectations of further stimulus back on the table.
The government has taken a more cautious stance on stimulus since commentary in official media last month warned of the risks of growing debt, but analysts said signs of weakness in the latest monthly data may spur policymakers into taking additional steps to support the economy.
"I see rising odds of a cut in RRR (banks' reserve requirements) or even a policy rate cut, before the end of the second quarter," Zhou Hao, senior Asia emerging market economist at Commerzbank said in a note after May activity data on Monday.
IMF Warns China of Risks of Mounting Corporate Debt
Soaring corporate debt is a serious and worsening problem in China that needs to be tackled quickly if Beijing wants to avoid potential systemic risk to itself and the global economy, a senior International Monetary Fund official warned.
While China's total debt of around 225% of gross domestic product isn't particularly high by global standards, its corporate debt at approximately 145% of GDP is high by any measure, the multilateral lending agency said.
A defining characteristic of China's mounting liability problem is its state-owned enterprises, which by IMF calculations account for around 55% of corporate debt but only produce 22% of economic output. Last year, SOE profits fell 6.7% year on year while their total revenue fell 5.4%, according to Chinese government data.
Debt-for-equity conversion may play a role in addressing the debt buildup, but banks must have the authority to distinguish between firms worth saving and those that should be allowed to fail, otherwise their equity will have no value, IMF said.
OECD: ECB could cut rates
The European Central Bank should ease monetary policy further if inflation does not begin rising as expected, and governments should find ways to snuff out non-performing bank loans to help economies reap the full benefits of ECB stimulus, the OECD said yesterday.
As Britain gets closer to a vote on June 23 on its EU membership, the Paris-based Organisation for Economic Co-operation and Development estimated that Brexit would knock 1% off of EU gross domestic product in 2018.
In in-depth reports on the eurozone and EU, the OECD said any negative economic shocks would provide grounds for further ECB easing to keep inflation on track toward its target of just under 2%.
“The ECB could envisage additional rate cuts, notably the deposit rate, as it is the most important policy rate in an environment of excess liquidity,” the OECD said.
The OECD estimated the eurozone economy would expand 1.6% this year and 1.7% next, assuming Britain voted to remain in the EU, leaving its forecasts unchanged from the publication of its biannual Economic Outlook last week.
The broader EU economy was seen faring slightly better with growth of 1.8% this year and 1.9% in 2017, notwithstanding the risk of fallout from Britons voting to leave the bloc.
Brexit would not only amputate 1% from EU economic output in 2018, but the loss would still not have been made up five years later, the OECD said, reiterating previous estimates.
Oil prices fell in early trading on Monday, pulled down by rising economic concerns in Asia and a related strengthening in the U.S. dollar, which makes fuel imports for countries using other currencies more expensive.
International Brent crude oil futures fell back below $50 per barrel, trading at $49.89 at 0127 GMT, down
U.S. West Texas Intermediate (WTI) crude was down 78 cents, or over 1.5 percent, at $48.29 a barrel.65 cents, or 1.29 percent, from their last settlement.
ANZ bank said that oil was being pulled down by a sharp reduction in risk appetite and a "U.S.-dollar and treasuries rally".
Reference: NASDAQ,Reuters,Irish Examiner
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