China’s slowing economy impacts the globe

The Chinese economy grows at weakest pace since 2009 amid trade war.

A report by Bloomberg says that China’s economy expanded at the slowest pace since the global financial crisis. The reasons being a domestic financial clean-up, weakening global demand and trade conflict with the US that served to dampen momentum.
 
China’s gross domestic product rose 6.4 per cent in the fourth quarter from a year earlier, which matched economists’ estimates, and compared with 6.5 percent in the previous three-month period. Consumption and factory output were reported to accelerate, while investment was held up.
 
The report published in Financial Express said that the world’s second-largest economy is on a long-term slowing trajectory as it shifts from the investment-led model of the past while carrying a heavy debt load. Further, the Chinese government’s control of that process is under duress from the standoff with the US over trade, coming at a time when the global expansion is shaky.
 
The world economy too is wobbling on the eve of Davos thanks to the current political environment.
 
Government authorities are using an array of targeted and limited stimulus measures to try and revive optimism avoiding  resorting to massive stimulus, as was done in past downturns.
 
The major headwinds that the economy is facing this year include trade conflict, debt curbs, slumping consumer confidence and a lack of “animal spirits”, says Stephen Chang, portfolio manager for Asia at Pacific Investment Management Co. in Hong Kong. “While the government is putting policy responses in place, we anticipate that these will need to be ramped up over the course of the year,” Chang wrote in a note ahead of the data.
 
The economy expanded 6.6 per cent for the year, which was in line with estimates. Though the growth has moderated significantly from the past years of double-digit growth, China continues to be one of the fastest growing large economies. Given its size, it also remains the world’s growth engine.
 
On Monday, the statistics office put out the data that said industrial output rose 5.7% vs 5.3%; Retail sales increased 8.2% vs 8.1% forecast; Fixed-asset investment climbed 5.9% last year from 2017 vs forecast of 6% and urban monthly surveyed unemployment rate was 4.9% at end-December.
 
The government and central bank have been trying to stimulate the economy without resorting to a massive credit flood and infrastructure binge like in 2009. The People’s Bank of China has been quietly guiding interbank borrowing costs down without actually cutting official interest rates, and the fiscal authorities have pressed on with tax cuts and expedited government bond sales, among other policies.
 
As President Xi Jinping’s top economic aide Liu He is scheduled to visit the US this month, the challenging economic background adds pressure to reach a deal on trade.
 
Given the massive size of China’s market, the slowdown is  impacting companies and industries worldwide. Auto sales in China dropped for the first time in three decades in 2018, that hurt prospects of both local and global manufacturers.
 
Such is the slowdown impact that a downturn in iPhone sales in China has hurt Apple Inc.’s share price this month and raised question marks over whether the consumer can keep cushioning the economy’s rebalancing away from the old smokestack industries.
 
It is expected that if the slowdown deepens, authorities may resort to more aggressive easing such as relaxing property purchasing curbs in the biggest cities.
 
Source: Financial Express, Bloomberg

 


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