A weakening forecast
Published by Jonathan Rowland,
China’s economy continued to weaken in 2018, with GDP expanding at its slowest rate since 1990. The key manufacturing sector is struggling, as the Purchasing Managers Index by IHS Market tracked in contractionary territory (below 50) in December 2018 and January 2019. Exports cooled sharply in December, due to softening global demand, as well as an end to the rush of export shipments ahead of US tariff escalation. Fixed investment growth has been subdued all year, as a result of a deleveraging campaign that has tightened credit conditions significantly.
On the private side, the foreign direct investment rush into China’s export sector has plateaued. While China’s consumer demand has long been suppressed and could offset the slack left by exports, household demand weakness is structural in nature and unlikely to be corrected quickly. Without export or consumer demand, business conditions will make it difficult to support robust growth in private investment.
The pressure across the economy has lead the government to ramp up stimulus policies to support growth. However, stimulus will be constrained by China’s large debt overhang, which the deleveraging campaign has just started to address. According to the latest data from the Bank for International Settlements, China’s corporate debt stood at 155% in mid-2018. This suggests that the government needs to be measured with its stimulus plan, as de-risking the financial system remains a priority objective. The trade conflict with the US remains a wildcard; should negotiations fail, the government would likely act more aggressively on stimulus to avert the negative impact.
In this article from the April issue of World Cement, Scott Hazelton, IHS Markit, presents an outlook for construction markets in China. Read the full article here.
Read the article online at: https://www.worldcement.com/special-reports/19042019/a-weakening-forecast/
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