Veteran investment strategist David Roche said monetary policy in China will be eased as the government continues to focus on stability and the “commonwealth” theme.
The commonwealth refers to The goal of the Chinese government is to create moderate wealth for all, facing the growing gap between rich and poor in the country.
To that end, Beijing has the ability cut lending rates further, inject money into banks to lend money to small and medium enterprises as well as ensure that troubled real estate developers working on their projects, Roche, president and global strategist at Independent Strategy, told CNBC.Squawk Box Asia“in Monday.
“Those are measures that I hope we’ll see more of, because the economic numbers are bad, and that’s bad for the economy. [Communist] Party,” he said.
Roche said the government would prioritize stability.
He added: “This kind of ideological ‘commonwealth’ theme will not go against it.”
Supply chain shock
Roche also says that if products cannot be shipped or if shipping costs make items expensive, consumers will buy less and sellers – who will earn less – will also reduce their spending.
“The effect of all that happens is that you lose confidence, so you also spend less,” he says. “The supply and demand disruption is really the flip side of the same coin.”
Roche added that relatively minor disruptions like coronavirus infections could lead to “huge economic consequences” beyond a single country’s borders.
China decided to close the cities and ports because of the few reported Covid cases, for example, will affect the shipping of containers moved from China to the United States, he said.
“That impacts the entire supply chain and then demand, confidence and everything else,” he said.
Supply chains have been under great pressure this year and Trade credit insurer Euler Hermes predicts the disruption will continue until the second half of 2022.
In essence, supply-side shocks are “inflation stagnation,” because they cause output and demand to fall, while also causing prices to rise because of scarcity and higher transportation costs, Roche said. speak.
“Now the question is how pervasive this problem has become, how well have central banks coped,” he said. The effect of supply-side shocks on expectations is also “key to whether this type of stagnant inflation shock becomes a more general inflationary macroeconomic environment,” he said.
– Evelyn Cheng of CNBC contributed to this report.
