China | Economic outlook S2 2019

Carefully steered growth in China and supportive monetary policies across the emerging markets

The US-China trade war poses a significant risk to Chinese growth and the effects are already being felt in the economy. Higher customs duties have reduced US demand for heavily taxed products and manufacturing sector investment has slowed from its peak level in 2018.

Government stimulus should help avoid a hard landing for China’s growth but just how much difference it will make remains to be seen. Currently, credit expansion is the main driver. The growth rebound remains moderate, especially compared with previous cycles, but depending on how the economic picture evolves, the authorities can be expected to maintain a balance between propping up growth and managing financial risk.

The downturn in car sales that started in 2018 has continued into 2019, although some of the weakness is due to regulatory constraints that aimed to restrict vehicle registration numbers. With the recent announcement that the rules will be relaxed, the hope is now that vehicle sales can stabilise.

Elsewhere in emerging markets, following sharp falls since the second half of 2018, growth stabilised in the second quarter of 2019 due to a rebound in several larger countries including Brazil, South Africa, Russia and Turkey. This growth rebound nonetheless needs consolidating and the current slowdown in global trade is dampening the outlook for emerging markets given the tight links between the two. This is even truer for the Asian countries that depend on global trade and are, in addition, particularly exposed to the Chinese slowdown.

Against a backdrop of widespread moderate inflation, the accommodative shift in developed countries’ monetary policies is nonetheless providing headroom for central banks in the emerging markets, which are lowering interest rates in a bid to boost growth.

 

See also : Market outlook S2 2019

 

The opinion expressed above is dated September 2019 and is liable to change. Latest available data is used.

 

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