Expect a pickup in economic activity over the rest of 2023
Special points to highlight in this issue:
* Data releases in August suggest that we will see an increase in economic activity over the rest of the year, and perhaps even a partial reversal of the relative weakening this year of consumption as a share of GDP. There is a sense that the PBoC and other government entities are eager to see a revival of confidence among households and private businesses and a bottoming out of bad economic news.
* But this will be challenging. Beijing is expending more effort trying to sort out the debt problems of local governments, but there is still a contentious debate on just what it can and should do. Meanwhile debt numbers continue to rise rapidly.
* The important point is that the fundamental relationship between economic activity and surging debt hasn’t changed. As long as Beijing wants to prevent economic activity from slowing further, it must allow local governments—or Beijing itself—to issue the debt needed to fund what is largely non-productive investment in infrastructure.
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