Although the economy slowed down in the second quarter, Morgan Stanley remains optimistic about China. The bank believes that with the recovery of the service industry and the introduction of government measures to stabilize growth, the Chinese economy is expected to regain momentum in the second half of this year.
Morgan Stanley's chief economist in China, Xing Ziqiang, released the latest research report last week, predicting that China's economic growth rate will rebound to 6% (seasonally adjusted annual rate) in the second half of the year, maintaining an average growth rate of around 5.7% for the whole year.
Morgan Stanley pointed out that the slowdown in China's economy in the second quarter was mainly due to the gap period after the release of backlog orders and the fading of the effects of the relaxation of the epidemic. However, the recovery of China's economy is far from over. With the new stimulus measures that the government will continue to introduce, coupled with the gradual growth of services and consumption brought about by the recovery of the employment market, this round of economic recovery will continue until the end of 2024.
Morgan Stanley predicts that China will add 16 million contact service industry jobs in the next 12 months.
In the second half of the year, Morgan Stanley believes that the Chinese government will take more stimulus measures to stabilize growth. In addition to extending the exemption of electric vehicle purchase tax, the government may also take action in the first and second-tier real estate markets, infrastructure, and other areas, and introduce more targeted consumption stimulus measures.
Morgan Stanley is very optimistic about the recovery of personal consumption, believing that it will become a key driving force for economic growth. The decline in exports will weaken support for the economy, but will not become a drag.
In addition, Morgan Stanley does not agree with the market's concerns about deflation. The research report stated that China's inflation will maintain moderate growth. By the end of the fourth quarter, the overall CPI will return to the level of 1.3%. Among them, the service industry CPI will steadily exceed the core commodity CPI. The PPI is currently at the bottom and will start to accelerate again in the third quarter.
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The bank believes that with the recovery of the service industry and the introduction of government measures to stabilize growth, the Chinese economy is expected to regain momentum in the second half of this year.

Morgan Stanley: China's economic recovery will continue, with growth expected to rise to 6% in the second half of the year.