Policy paralysis has dented near-term outlook

China’s economy has stalled recently and headwinds are still intensifying on multiple fronts. The lack of a stronger stimulus response partly reflects a greater tolerance for economic weakness. But it also points to a worrying degree of policy paralysis, which suggests that the downturn could persist for a while longer. We now expect q/q growth of just 3.0% annualised over the rest of the year. This rests on the assumption that policymakers will eventually intervene more forcefully. But even then, any economic reacceleration is likely to be modest given the structural decline in trend growth.