China: Hard-landing risk has eased - BBVA

Analysts at the Research Department at BBVA, anticipate that consumer and market sentiment will continue to improve through the year in China as the chance of signing a trade deal between China and the US is increasing and also after authorities’ easing efforts that will help the economy stabilize at a level close to the official set target.

Key Quotes: 

“World growth has slowed down more than expected over recent months, increasing fears of a hard-landing of economic activity. In this context, the Fed and the ECB have altered their roadmap and have announced new monetary stimulus measures. Similarly, China has implemented additional expansive policies, both of a fiscal and monetary nature. This reaction by the economic authorities in the main economies brings about a milder slowdown of world growth. However, an unforeseen reduction in dynamism in the Chinese economy, a new wave of protectionist measures and the disorderly exit of the UK from the European Union, among other risks, could trigger more negative scenarios.”

“The better-than-expected Q1 GDP figures have largely alleviated people’s concern over a free fall in growth this year.”

“A number of growth headwinds still remain intact. The front-loading exports in 2018 will lead to a slowdown in the external sector in the first half of the year. If the scale is larger than expected, it will further weigh on growth. Relatedly, there still some uncertainties about the prospective trade deal between China and the US, which could aggravate the suffering of China’s shipment.”

“The headwinds also abound within the country. The property market in small cities suffered an oversupply problem in the past couple of years. The situation could worsen if growth pressure rises up. A bubble burst of housing market will cost household dearly and have enormously adverse impact on private consumption.”

“The authorities have to boost the economy through policy easing while they, on the other hand, needs to ensure the stimulus won’t raise the general debt level too much. In this respect, the authorities need to walk a fine line between stimulus and debt sustainability management. Big policy missteps, which could happen in both directions, will take a heavy toll on China’s economy.”