Chinese Economic Outlook: Further Slowing in Store?
|Executive Summary
The Chinese economy continued to expand in Q4, with real GDP growth coming in slightly above consensus at 6.8 percent on a year-ago basis. However, we look for the Chinese economy to slow in the coming quarters, and in this report we discuss key risks to our outlook that remain areas to watch. While the Q4 expansion was likely supported by a resilient consumer sector and improving international trade, a slowdown in investment spending seen over the past several years presents a downside risk to China’s more rapid pace of economic growth. Although the ramp-up in investment spending over the past decade initially contributed to productivity and output gains, China’s corporate sector is now highly leveraged.
In addition to a highly-leveraged corporate sector, trade relations with the U.S. have led to a large bilateral trade imbalance that could result in trade restrictions against China. A return of capital outflows like those seen in 2015 and 2016 as the renminbi depreciated could also weigh on the Chinese economy, should investors become worried about future growth prospects and/or move capital to countries with higher interest rates. While these points remain areas to watch, our forecasts for 2018 and 2019 see these risks as largely manageable for the time-being, with output rising 6.4 percent and 6.0 percent, respectively, as China’s growth falls in line with its more advanced counterparts.
Chinese Economic Growth Remains Steady in Q4
Data released today showed that real GDP in China rose 1.6 percent sequentially (not annualized) and 6.8 percent on a year-ago basis in Q4 (Figure 1). While the sequential growth rate came in slightly below consensus, the Q3 number was revised upward to 1.8 percent. The year-over-year print came in slightly above consensus, demonstrating likely broad-based expansion in the quarter. Today’s release puts China’s 2017 growth rate at a solid 6.9 percent, up from 6.7 percent last year
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