China: Credit growth loses momentum – UOB

Economist at UOB Group Ho Woei Chen, CFA, reviews the recent results from the credit growth in China.

Key Quotes

“China’s credit impulse has peaked in 3Q2020, which is naturally a concern as this implies a moderation in its economic activities. We estimate that the credit impulse will slip into the negative in late-2021, the first time since 2H2018. This is expected to coincide with a downturn in China’s business cycle.”

“Given the changing economic structure, we think there is room for an improvement in credit efficiency which means economic growth may not necessarily be significantly crimped as a result of slower credit expansion. For instance, the increased allocation of credit to the services sector compared to the industrial sector which is prone to overcapacity and inefficiency could improve the growth outlook in the medium to long term.”

“In the short-term, we believe there could also be further positivity to the outlook into 2022, fueled by the long-awaited reopening of international borders while sustained external demand could soften the impact of less expansionary domestic policies. We maintain our forecast for China’s GDP growth to moderate to 8.0% y/y in 2Q21 from 18.3% y/y in 1Q21 with our full-year growth projection at 9.1%.”