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Exporters will be keeping a close eye on China this week to see if the country’s central bank cuts longer term interest rates to stimulate the economy of New Zealand’s largest trading partner.
According to Reuters, The People’s Bank of China is expected on Tuesday to cut its one- and five-year loan prime rates, used to set consumer loan and mortgage rates, by 10 basis points to 3.55% and 4.20%, respectively.
The move would follow China’s cut to short-term lending rates last week as policymakers seek to bolster China’s flagging recovery from Covid-19. It’s in contrast to other central banks around the world which have been raising rates to dampen inflation.
China’s economy hasn’t rebounded as fast as expected after its emergence from strict zero-Covid lockdown measures with data over April and May missing expectations, said CMC markets analyst Tina Teng.
“The economic data didn’t come out as rosy as people thought,” she said. “The rebound of the economy is faltering.
“The Government now probably have to impose further stimulus policy to the economy, just to boost the sentiment and just aid the whole country’s economic rebound – this is what’s happening right now.
“They want to boost the economy.”
Teng expects the rate cuts to help the economy rebound further after a bumpy few months.
Speculation is also mounting that the Chinese government could unveil a stimulus package, with support for the ailing real estate sector and incentives for consumers to spend.
At a meeting chaired by Premier Li Qiang on Friday, the State Council considered a batch of macroeconomic policies designed to expand “effective demand”, strengthen the real economy and defuse risks in key areas, according to a report in the South China Morning Post.
“In response to the changing economic landscape, it is imperative to introduce policies that are more powerful,” the council said in a statement released by state news agency Xinhua.
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China’s central bank is looking to stimulate the country’s economy, which is expected to help increase demand for New Zealand primary goods exports like dairy products.
China is New Zealand’s largest market for primary industry exports, accounting for about a third of primary industry export value in the year to the end of March.
“If they stimulate the economy, that’s a good sign for us and a good sign for our business confidence,” Teng said.
“This is a good sign for the New Zealand economy if Chinese people are buying and they import more from New Zealand. We could sell more to China.”
New Zealand’s largest export commodities, including dairy, meat and forestry, have been impacted by the slower Chinese rebound.
The latest Situation and Outlook for Primary Industries report, released by the Ministry for Primary Industries at Fieldays last week, noted that while China had been able to avoid much of the surge in Covid infections last year through stringent containment measures, that appeared to have come at substantial economic cost.
“The targeted restrictions on mobility not only dampened demand but also curtailed production by shutting down factories and disrupting the domestic supply chain,” the report said.
The IMF estimated China’s economic growth had dropped to 3% last year as a result, it said.
With mobility having returned to normal, China’s economy was expected to recover with the IMF forecasting GDP growth to increase to 5.2% this year, the report said.
“As China is a major importer of New Zealand food and fibre sector exports, the reopening and growth of its economy are expected to generate positive spillover effects, particularly for sectors with stronger trade links to China,” the report said.
In the year to March, China accounted for 34% of New Zealand’s dairy exports by value, 37% of meat and wool products, 54% of forestry products, and 36% of seafood products. Horticulture bucked the trend, with a more even spread of markets – the United States and the European Union were the biggest with China making up just 14% of exports.
The benchmark S&P/NZX 50 Index slipped 0.4%, or 49.287 points, to 11,750.75 on Monday. On the broader market 50 stocks rose and 75 fell with $75 million shares traded.
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