Daily Management Review

China’s Q2, 2019 Growth Slowest In 27 Years


07/15/2019




China’s Q2, 2019 Growth Slowest In 27 Years
The second quarter 2019 economic growth of China touched a 27 year old low at 6.2 per cent reflecting the pressure on its economy because of lowering of demand both domestically and abroad amidst the ongoing trade war with the United States.
 
While there were some indications of improvements in June factory output and retail sales, some analysts believed that those indications may not be sustainable. They also anticipate that more industry support measures in coming months would be implemented by China.
 
The condition of the second-largest economy of the world is being closely watched by the trading partners of China as well as the global financial markets as the US-China trade war lingers on – giving rise to concerns about a global recession.
 
The second quarter growth report was lower than that achieved by China in the first quarter of the current year which was at 6.4 per cent which shows that more needs to be done by the Chinese government to spur consumption and investment enhance confidence of the business communities.
 
The slowdown in the April-June period was however in line with the expectations of analysts and was the slowest growth for the country since the first quarter of 1992 – which is the earliest quarterly data available publicly on record.
 
 “China’s growth could slow to 6% to 6.1% in the second half,” said Nie Wen, an economist at Hwabao Trust. That would be close to the 2019 target range of 6-6.5 per cent as forecast by Beijing.
 
Wen predicts that there would be a further slowdown of the Chinese economy before stabilizing around mid-2020 and added that cutting reserve requirement ratios (RRR) of banks “is still very likely as the authorities want to support the real economy in the long run”. Since early 2018, six such RRR cuts have been made by China so the more cash is available with the banks for lending out to business as well as for individual consumers and analysts believe that two more such cuts are on the way by this year.
 
This year, providing fiscal stimulus has been the main strategy of China which included announcement of huge tax cuts worth nearly 2 trillion yuan ($291 billion) as well as the announcement of a quota of 2.15 trillion yuan for special bond issuance by local governments that is aimed to increase activities in the domestic infrastructure sector.
 
However, because of a cautious business sentiment, the response to those stimulus has been slow.
 
Chinese economy is also reeling under the pressure of its trade war with the US – especially after the Trump administration increased the tariffs on Chinese products in May from 10 per cent to 25 per cent. And even though both the countries have now agreed to resume stalled trade negotiations, there are multiple sticking points in the relationship that would not be resolved very easily or quickly, say analysts.
 
The latest first half yearly data from China shows that exports accounted for 20.7 per cent of GDP growth despite the trade ware because of increased exports by Chinese exporters to ship as much as possible before the setting of the increased tariffs by the US. There has however been a depression in imports because of weakening domestic demand.
 
“Due to the global slowdown and impact from the trade war, our exports will continue to fall and it’s possible they may post zero growth for the year,” said Zhu Baoliang, chief economist at the State Information Centre, a top government think-tank.
 
(Source:www.ft.com)






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