China seen heading for sub-6% economic growth as tariffs soar

Economists are downgrading their forecasts for economic growth in China again, to below a level seen as necessary for the Communist Party to meet its own goals in time for its centenary in 2021

Economists are downgrading their forecasts for economic growth in China again, to below a level seen as necessary for the Communist Party to meet its own goals in time for its centenary in 2021.

Oxford Economics, Bank of America Merrill Lynch, and Bloomberg Economics have all cut their forecasts for gross domestic product growth in 2020 to below 6% as a result of increasing risks from the tariff war with the US. In addition, Bank of America’s Helen Qiao and others are warning that the government’s current approach to stimulus is proving insufficient.

China is refraining from cutting benchmark policy rates or pumping large volumes of cash into the economy even as growth slows to the weakest in almost three decades and the tariff escalation in August adds further headwinds. That’s endangering President Xi Jinping’s ability to claim China has reached a “moderately prosperous society” that has doubled 2010 GDP by next year, as a rate above 6% in 2019 and 2010 would be needed.

Demand for credit has been weak, and while the policy easing since late last year has helped moderate the slowdown, the impact has been small, according to a report by Louis Kuijs, chief Asia economist at Oxford Economics in Hong Kong. With all the issues facing China, “more policy easing is needed to convincingly stabilise economic growth,” Kuijs said.

China’s economic growth will likely slow to 5.7% in the last quarter of 2019 and remain broadly at that pace in 2020, Kuijs said. Output growth softened to 6.2% in the second quarter from a year earlier, close to the lower bound of the government’s full-year target of between 6% and 6.5%. Earliest indicators compiled by Bloomberg showed the economy slowed further in August.

“We now expect China’s growth to slow to 6% this year and 5.6% next year. Our lower forecasts are subject to downside risks, given further threatened tariffs, and uncertainty over how the blow to business confidence from the trade war will play out,”said Chang Shu, chief Asia economist of Bloomberg Economists

Bank of America’s chief Greater China economist Helen Qiao said their 2020 forecast has been cut to 5.7% from 6.0%, and warned of the risk that policy makers are falling behind the curve on support to the economy.

Source: Bloomberg 

Posted on : 04 September 2019
//
Last Updated : Wednesday 13th November 2019