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FOCUS: Economic Outlook in 2019
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Economic Outlook in 2019

By Elisabeth Dong

BT 201902 focus 032019经济展望

2018年,中国经济增长放缓,经济面临压力。这是内外并存的挑战。为了对2019年的经济趋势做出假设,有必要简要回顾一下我们背后的数据。

国内生产总值
该图表按百分比描述了中国2017年和2018年按季度增长的GDP增长率。 2017年第一季度GDP增长率为6.9%。 2018年第一季度出现另一次下降并且变得更加严重之后,直到2018年第三季度都没有变化,国内生产总值增长率下降到6.5%。因为在2018年第三季度,两个贸易巨头 - 中国和美国之间的摩擦升级。由于贸易战,2019年中国GDP将在2019年继续缓慢下滑。根据日经指数最新的经济调查显示,中国今年的国内生产总值将降至6.2%。

2019年您能期待什么?
不可避免的是,中国将在2019年塑造亚洲的经济趋势,因为中国是大多数亚洲国家的主要贸易伙伴,因此可以预期该地区最大的经济力量和连锁反应。在2019年,预计增长仍将存在,但与2018年相比有所放缓,与美国的紧张关系将继续影响中国和其他亚洲经济体以及全球供应链。

BT 201902 focus 02In 2018, China's growth slowed down to some extent and economy faced pressures. It was a year of internal and external challenges. In order to make assumptions about economic trends in 2019, it is necessary to briefly review the data from the year behind us.
 

Gross Domestic Product

BT 201902 focus 04The graph depicts China's GDP growth in 2017 and 2018 on quarterly basis in percentage terms. In the first quarter of 2017 GDP growth was 6.9 % and downward slope in Q2 indicates decline to 6.8% by the beginning of the third quarter of 2017. There were no changes until the first quarter of 2018, when another decline occurred and became even more severe, dropping the GDP growth rate to 6,5% by the third quarter of 2018. Data shown natural course of events, given the fact that in Q3 of 2018, frictions escalated between two trade giants – China and the US, and it is expected in 2019 due to trade war, Chinese GDP will continue its slow decline in 2019. According to the latest economic survey by Nikkei, China's GDP will drop to 6.2% in the current year.
 

Factors Affecting Decline in GDP Growth

There are numerous reasons which led to decrease in the growth rate of Chinese GDP. One of the most influential factors behind the slowdown were frictions with USA, which resulted in increased tariffs on Chinese exports. Auto industry was severely affected and that resulted in weak auto sales. Moreover, technology sector has lost its fast pace and China was accordingly affected as one of the world’s top electronic devices exporter. For the first time in two years, China’s manufacturing sector contracted in December 2018, signaling that it requires more policy support to deal with current trends in the world economy and growing pressures.
 

This contraction signals the loss of economic momentum and poses challenges for not only Chinese, but the world economy. In case trade war continues after the expiration of deadline on March 1th, 2019 even stronger negative economic effects can be expected. There is reasonable uncertainty whether China and US can overcome issues during the trade war ceasefire. Furthermore, trade war arose suspicions among international investors, who might be driven away from investing in China. But Government was prepared for that possibility and is trying to offset possible issues with Negative List reform, which arrived at the very end of 2018.

BT 201902 focus 05The graph depicts new export orders PMI in China for the period January 2017 - November 2018. There is an overall decline in 2018 in comparison to 2017, and the major decline started in July, 2018. Critical level which separates growth and contraction is 50 and after May, 2018, PMI remained under 50, indicating contraction throughout the second half of 2018. Data for November and December show weakening exports and imports, which indicate softening global demand.
 

In addition to external pressures, internal China also had to deal with internal challenges. Weakened domestic demand was a major problem, given its combined effect with tariff increases. Therefore, China raised minimum threshold for personal income tax and cut corporate tax in order to stimulate consumption. Debt at local level was another issue, which Government tried to solve by cutting back spending on the infrastructure.
 

Recovery of Infrastructure and Private Investments

Fixed asset investment by the private sector
BT 201902 focus 06Source: CEIC, BNP Paribas Asset Management (Asia)

Relaxation of funding constraints on local governments are expected to enhance infrastructure investments in 2019 and credit support is expected to help private sector to recover. The graph above depicts fixed asset investment by the private sector beginning in 2010 and ending in 2018. It seems that momentum gained in the end of 2017 begins to lose its strength. The introduction of “six stabilities” is expected to boost the growth, especially in finance sector. In 2019, China will maintain active fiscal policy and continue investing in transport, infrastructure, agriculture, energy conservation and technological R&D, which is expected to promote growth in infrastructure investments.
 

Furthermore, China released already mentioned Market Access Negative List on Christmas in 2018 aiming at making it easier for foreign investors to invest in China. The list was released by the National Development and Reform Commission and the Ministry of Commerce. It is comprised of 151 items and 581 specific rules, down by 177 and 288, respectively, compared with the previous draft version, for investors’ easier orientation. Industries that are not listed are available and open for investments worldwide.

BT 201902 focus 01What to Expect in 2019?

Inevitably, China will shape economic trends in Asia in 2019, as the largest economic force of the region and ripple effects can be expected, because China is major trading partner to the most Asian countries. In 2019, it is expected that the growth will still be present, however, slower in comparison to 2018, and that tensions with the US will continue to affect Chinese and other Asian economies, as well as supply chains worldwide.
 

Chinese Government is determined in aiming for quality and stabile development instead of quick expansion, which so far turned out to be successful policy for this country. It is expected that China will aim at inducing domestic demand in order to boost consumption, which is important factor in its GDP, given its vast domestic market.
 

However, it is also expected that China will deal with supply side as well, by implementing structural reforms, upgrading industries and introducing news business models, as well as attracting foreign investors. In addition, Chinese government will continue working on employment stabilization and finding ways to fight pollution. In conclusion, analysts predict that the economy will continue moderate growth in 2019, at the rate of 6,2%, which is only 0,3% less than in 2018. Accordingly, consumption is expected to stabilize in the current year.

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