Following the decline in China's flash HSBC manufacturing PMI to 48.7 in May from a final reading of 49.3 in April, Barclays maintains its forecast for Chinese economic growth to bottom in 2Q barring a deeper EU recession, and believes that effective policy support for a quick stabilization will have to come from investment. "We think another big stimulus package remains unlikely as long as the U.S. economy holds up and the eurozone experiences only a mild recession," it says in a note. While the house acknowledges that the probability of a cut in the lending rate has increased it says "the room for significant monetary easing is limited, in our view, given the inflation and financial risks." Barclays notes that various fine-tuning measures to support growth including monetary/fiscal policies and structural reforms have accelerated since March and more are being rolled out and implemented. "It will take some time for the effects of these policy changes on growth to materialize," it adds.
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