Is China heading for Japan-like stagnation? Economist says the worst is likely behind us

cnbc.com:

BEIJING — China's economic recovery from the pandemic is set to broaden, meaning the country isn't headed toward Japan-style stagnation just yet, according to Macquarie's Chief China Economist Larry Hu.

China's recent economic data largely disappointed investors hoping for a sharp rebound in the world's second-largest economy after the end of Covid controls in December. Youth unemployment hit a record high of above 20% in April.

In a report Friday, Hu attributed the recent economic slowdown to a «premature» withdrawal of policy support after better-than-expected first quarter data.

Going forward, he expects policymakers to remain accommodative given the lack of inflation and high youth unemployment — with more urgency to ease as year-on-year comparisons soften in the third quarter.

«As the recovery broadens over time, the economy will enter another upward spiral with stronger demand and better confidence,» Hu said.

At a meeting Friday, China's top executive body, the State Council, called for improving the business environment and removing local barriers to market access, according to state media. The country would also extend purchase incentives for new energy vehicles as a way to boost consumption, state media reported.

The meeting, led by Premier Li Qiang, noted the foundation of China's economic recovery is not yet solid.

«While the worst is behind us, the recovery is far from being self-sustaining,» Macquarie's Hu said. «Companies are reluctant to hire due to soft consumer demand, and consumers are reluctant to spend due to weak labor market.»

«Such a self-fulfilled downward spiral bears some resemblance to Japan's 'lost decades,'» he said.

Japan's economy grew rapidly in the 1970s and 1980s, only to stagnate when