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FOCUS: 2019 GROWTH FROM 6% TO 6.5%
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2019 GROWTH: FROM 6% TO 6.5%
By Diane Grant

BT 201903 focus 012019年GDP增长:6%- 6.5%




BT 201903 focus 02On January 21st, official GDP figures for 2018 were announced. According to data, 6.6% GDP growth in 2018 is the lowest recorded annual growth rate in the past 28 years. Data for the last quarter of 2018 indicate 6.4% growth, which matched analysts’ expectations. Reported figures were anticipated by the economists, given the ongoing trade dispute with the US, which is the largest trading partner of the country and also mounting internal pressures.

According to the Ning Jizhe, the director of the National Bureau of Statistics of China: “Trade dispute with the United States has affected the domestic economy, but the impact was manageable”. He also added that “the economy was displaying slowing, but stabilizing trend in the last two months, which was mostly driven by vast domestic demand”. Despite the lowest growth rate reported in nearly three decades, there were also some bright spots in the official data. Economists predicted 5.3% growth for industrial output, which exceeded their expectations with 5.7% growth and also outpaced November 5.4% growth. Retail sales were another bright spot with 8.2 percent increase in December.

Negative effects of the tariffs

Due to events in global economic environment, this year’s economic growth target is expected to be specified as a range from 6% to 6.5%. The official target is though expected to be revealed at the annual parliamentary session in March.

BT 201903 focus 03China GDP Growth 2016-2019

The figure above depicts quarterly GDP growth for China from January, 2016 to January, 2019. For the first three quarters of 2016, GDP growth remained constant at 6.7% and it rose to 6.8% in the last quarter of 2017. It kept its pace until the third quarter of 2018, when it came back to 6.7%.

In 2018, trade dispute with the US gained momentum and it escalated in July, 2018, which can explain the rise of GDP to 6.8% by the end of the second quarter in 2018, when the exporters rushed to ship their goods to the United States before the activation of tariffs. Negative effect of tariffs can be observed from the second half of 2018, which combined with the decelerated world demand and internal problems, reduced growth rate to 6.4% for the last quarter of 2018. Overall, it is clear that annual GDP growth experiences downward pressure and it seems natural to express the growth rate expectations in a form of a range, rather than a certain percentage.

BT 201903 focus 04Second largest economy

China has plans to become the world’s largest economy. However, given the current circumstances and anticipations for future, it seems that it will hold the position of the second world’s largest economy in the future. The last reported GDP figures indicate growth of 6.6% for 2018, which is expected to fall to 5.5% for the period 2021-2025, according to the analysts of JP Morgan. This transition could be very volatile, and it would require further reforms, so that the country would have to rely on domestically driven growth and public sector restructuring, instead of relying on trade expansion via foreign markets, especially the US market.

BT 201903 focus 05Government actions

The Government has been trying to offset internal and external pressures through series of stimulus measures, which included tax cuts, several changes in bank reserve requirements, and also many other incentives, which were intended to stimulate domestic spending last year. It is worth mentioning that stimulus will have little room for expansion in the future, because Government is struggling with relatively high levels of debt, which has been piling up in the past years. Precisely, in the previous year debt to GDP ratio reached 250%.

The Government intends to keep consumer inflation target at 3% in 2019, regardless of the softening in prices, which will leave enough room for the Government to intervene in case of even weaker consumption, which is essential for further economic development of the country. The central bank is expected to increase the amount of money in the economy by lowering the reserve requirements for the banks, while at the same time trying to channel more funds to private companies, especially small ones.

BT 201903 focus 06Conclusion

GDP annual growth of 6.6% is the lowest growth rate marked in the nearly 30 years. The pressure on the economy is big, and it seems that it would be difficult to exceed the rate of 6.5% in the current year. Furthermore, if GDP growth falls below anticipated rage, the economy could face severe problems. Employment levels are on constant watch, as there is reasonable fear that they could drop, in case factories are shed out of business due to trade dispute with the US.

For the upcoming two years, at least 6.2% growth is necessary to meet the goal of the government of doubling GDP and incomes by 2020. Setting a range as GDP growth gives policymakers enough space for dealing with uncertainties caused by the trade dispute. GDP growth rate of 6.6% in 2018 might be low for domestic standards, but it is important to note that such figure is impressive in the rest of the world, especially in western economies. At this moment in time, it is hard to make an educated guess on what GDP growth rate to expect in the current year, given the fact that trade war truce is about to end in less than twenty days. The outcome after March 1st is expected to have significant impact on the economy, and the moral impact of the trade dispute can be felt for a long time already.

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