China: Growth would slow materially - Westpac

Elliot Clarke, Research Analyst at Westpac, points out that they started this year with a sub-consensus view that Chinese growth would slow materially, to 6.3% in 2018 and 6.1% in 2019 and based on the 6-month annualised pace to June of 6.4%, their beginning of the year forecast looks to be on the mark.

Key Quotes

“Weak investment by State Owned Enterprises and local government authorities has been key to this outcome, coming as a result of a government mandated wholesale change in credit supply and authorities’ related pursuit of high-quality growth and long-term prosperity.”

“Amid growing trade tensions, authorities are starting to take a more active approach to policy to make sure that the deceleration in activity does not go too far. Note though this stimulus’ marginal nature. Hence we remain comfortable with a further deceleration to 6.1%yr in 2019.”

“If trade tensions intensify, a sub-6.0%yr growth pace could even be seen in 2019 absent additional fiscal support. On trade tensions, this week China implemented 25% tariffs on $16bn of US goods effective August 23, matching the scale of 2^nd tranche of tariffs imposed by the US.”

“China had flagged their response in advance, but removed crude oil from the original list of 114 products and consequently had to expand the final list to 333 products including coal, medical and steel products.”