(Yicai Global) July 29 -- China’s economic recovery will continue to strengthen in the second half, while fiscal support policies will become more moderate, according to views recently published by several foreign banks.

China’s economy is on the road to recovery, and quarter-on-quarter gross domestic product expansion is likely to outpace potential growth, or the growth that can be achieved by the optimal allocation of resources, according to the US’ Citibank’s chief China economist Liu Ligang.

GDP growth will reach 5.5 percent in the third quarter year on year and 5.9 percent in the second half, he said.

The pace of economic recovery will slow in the second half as the main drivers for economic recovery in the first half weaken, said Xiong Yi, Deutsche Bank's China chief macroeconomist.

Overall, the supply side has recovered quicker than the demand side, Liu said. In other words, the recovery in production and infrastructure investment has far outpaced the recovery in consumption and business investment.

Moderate Fiscal Stimulus

China's monetary policy stimulus will decrease in the months to come, said Marco Sun, chief financial market analyst at Japan’s MUFG Banks' department of global financial markets. As the focus shifts from stimulating the economy to controlling financial risks, the scope for further rate cuts shrinks, he added.

China's monetary policy easing has been on hold since May, but it should be far from over, Liu said.

The central bank is likely to lower its reserve requirement ratio twice by 50 basis points in the second half, Liu added. A 20-bps cut in the medium-term lending facility rate is expected in the third quarter, which would release CNY20 trillion (USD2.9 trillion) of new loans and CNY30 trillion of social financing.

Increased credit amounts and massive fiscal support will continue to fuel economic growth in the second half, Xiong said.

There remains the risk of further localized outbreaks of the novel coronavirus until an effective treatment or vaccine is found, Liu said. Therefore, should fiscal stimulus be delayed or limited, investment growth is likely to be lower than expected and business capital spending will continue to be a drag on recovery.

Editors: Xu Wei, Kim Taylor