IFM Investors expect powerful stimulus from China this year

Beijing has set its annual growth target at about 5 per cent, but economists are increasingly doubtful it will meet that level after a run of disappointing data amid a worsening property slump.

“The [PMI] data seems to be converging on a point close to 50 consistent with an economy that is neither expanding nor contracting,” said Robert Carnell, regional head of research at ING. “Things could be worse, but markets are not likely to take too much comfort from [the] data.”

The Australian dollar briefly popped above US65¢ in a relief rally on Thursday and steadied at US64.85¢. Still, the local currency is down nearly 5 per cent this year, partially because of Australia’s strong trade link with the world’s second-largest economy.

A deeper downturn in China’s housing sector would also have negative implications for the Australian economy and currency because it would hurt demand for its commodities, Dr Joiner said. China is Australia’s biggest customer of iron ore, the main ingredient for steel making.

“We always like to consider a hard landing in China because we are so linked to that economy that we can never discount it completely,” he added. He does, however, remain hopeful that authorities will stabilise the sector as best it can.

Based in Melbourne, IFM Investors is a global infrastructure fund manager owned by industry superannuation funds and manages about $215 billion in assets.

Tentative steps

For now, Dr Joiner is optimistic that a few steps taken by Beijing this month will benefit Australia. These include China agreeing to lift punitive tariffs on imports of Australian barley imposed at the height of political tensions between the two countries and lifting a ban on group tours to Australia following harsh travel restrictions during the pandemic.

Dr Joiner believes Australia will dodge a recession because of population growth. At the same time, he noted that a bigger workforce would put pressure on the job market. “The labour market needs to absorb them and less labour demand might have a big impact on the unemployment rate,” he said.

As a consequence, he hasn’t ruled out a hard economic landing scenario in Australia. “It’s not about growth, but how the labour market performs – whether people lose their jobs or are not able to find a job – and that will be the way we look at a soft landing and hard landing.”

He said there was a risk that the 3.6 per cent unemployment rate would rise above the Reserve Bank’s forecast of 4.5 per cent by 2025 because of the higher number of people entering the workforce.

Treasurer Jim Chalmers’ May budget forecast an extra 1.5  million migrants over five years, including a record 400,000 in 2022-23.

Ahead of next week’s RBA meeting, Dr Joiner believes Australia’s central bank is done raising interest rates but will keep its tightening bias because inflation may be stickier than anticipated.