China’s economy fell short of expectations
and its central bank chose not to follow the Federal Reserve in raising
borrowing costs, adding fresh caution on the outlook for global growth
as trade tensions with the U.S. escalate.
With President Donald Trump renewing threats to impose tariffs on the
world’s second-largest economy, May data for industrial output, retail
sales and investment all came in beneath economist forecasts on
Thursday. The People’s Bank of China kept the cost of reverse-repurchase
agreements steady, defying predictions it would track the Fed’s hike of
Wednesday.
world’s second-largest economy, May data for industrial output, retail
sales and investment all came in beneath economist forecasts on
Thursday. The People’s Bank of China kept the cost of reverse-repurchase
agreements steady, defying predictions it would track the Fed’s hike of
Wednesday.
Investors now face greater uncertainty over what had been the
strongest global upswing since 2011. That doubt is set to fester after
Trump said on Wednesday that he’ll confront China “very strongly” over
commerce in coming weeks. His administration is scheduled to announce a
new list of duties on Friday.
strongest global upswing since 2011. That doubt is set to fester after
Trump said on Wednesday that he’ll confront China “very strongly” over
commerce in coming weeks. His administration is scheduled to announce a
new list of duties on Friday.
“A slowing China will add to the challenges for the global economy,”
said Louis Kuijs, chief Asia economist at Oxford Economics in Hong Kong
and a former International Monetary Fund researcher. “Until recently,
the resilience of growth in China was an important buffer for the global
economy in the face of headwinds from trade friction, slower growth in
Europe, higher oil prices and issues in various emerging markets.”
said Louis Kuijs, chief Asia economist at Oxford Economics in Hong Kong
and a former International Monetary Fund researcher. “Until recently,
the resilience of growth in China was an important buffer for the global
economy in the face of headwinds from trade friction, slower growth in
Europe, higher oil prices and issues in various emerging markets.”
Both industrial output and retail sales rose less than expected in
May compared to a year ago. Fixed-asset investment growth in the first
five months was the slowest since the data began in 1999, as was the
investment in the services sector. The decade-long decline in investment
has intensified this year, as policy-makers act to reduce leverage at
state-owned companies and local governments. While that’s a deliberate
policy, officials risk a worse-than-desired deceleration in growth.
May compared to a year ago. Fixed-asset investment growth in the first
five months was the slowest since the data began in 1999, as was the
investment in the services sector. The decade-long decline in investment
has intensified this year, as policy-makers act to reduce leverage at
state-owned companies and local governments. While that’s a deliberate
policy, officials risk a worse-than-desired deceleration in growth.
Tit-For-Tat
China’s weaker performance comes amid a slew of mixed signals for the
global economy. While the IMF sees robust global expansion of 3.9
percent this year and next, Managing Director Christine Lagarde last
week warned that clouds on the horizon are getting darker by the day.
Topping the worry list are ongoing fears of protracted trade disputes
between the U.S. and China, the European Union, Canada and Mexico.
global economy. While the IMF sees robust global expansion of 3.9
percent this year and next, Managing Director Christine Lagarde last
week warned that clouds on the horizon are getting darker by the day.
Topping the worry list are ongoing fears of protracted trade disputes
between the U.S. and China, the European Union, Canada and Mexico.
China has promised to retaliate if the U.S. pushes ahead with plans
to levy tariffs on $50 billion in imports, threatening an escalating,
tit-for-tat trade war. At the same time, rising interest rates have
jolted emerging markets, while fears of an Italian debt crisis have
returned, along with worries over higher oil prices. A gauge of world
trade devised by Oxford Economics Ltd. fell in May to its lowest level
since early 2017.
to levy tariffs on $50 billion in imports, threatening an escalating,
tit-for-tat trade war. At the same time, rising interest rates have
jolted emerging markets, while fears of an Italian debt crisis have
returned, along with worries over higher oil prices. A gauge of world
trade devised by Oxford Economics Ltd. fell in May to its lowest level
since early 2017.
China, which is the world’s second-largest economy, is already
slowing after a stronger-than expected start to 2018, even before any
new U.S. tariffs on its exports.
slowing after a stronger-than expected start to 2018, even before any
new U.S. tariffs on its exports.
Economists surveyed by Bloomberg see a 6.5 percent expansion this
year after 6.9 percent in 2017, in line with the government’s own
target. A gauge of early indicators developed by Bloomberg Economics in
May showed some sectors of the economy slowing while others, buoyed by
global trade, held up.
year after 6.9 percent in 2017, in line with the government’s own
target. A gauge of early indicators developed by Bloomberg Economics in
May showed some sectors of the economy slowing while others, buoyed by
global trade, held up.
While economists are interpreting the lack of an increase in the
7-day reverse repurchase rate on Thursday as a signal of easing policy,
the central bank can react at any time to the Fed’s decision,
particularly if downward pressure on the yuan materializes.
7-day reverse repurchase rate on Thursday as a signal of easing policy,
the central bank can react at any time to the Fed’s decision,
particularly if downward pressure on the yuan materializes.
The central bank is trying to walk a fine line in its efforts to cut
debt without tightening too much and strangling lending and growth.
debt without tightening too much and strangling lending and growth.
Its campaign to curb debt at state firms and local governments, plus
efforts to shrink the shadow-banking sector, are adding to a cyclical
moderation in the pace of growth. That campaign led to a sharp
deceleration in credit growth, and the central bank has tried to support
growth by increasing liquidity.
efforts to shrink the shadow-banking sector, are adding to a cyclical
moderation in the pace of growth. That campaign led to a sharp
deceleration in credit growth, and the central bank has tried to support
growth by increasing liquidity.
China has been trying to ensure liquidity supply to cushion any
economic slowdown and help lenders meet repayment obligations. It
boosted injections via the Medium-term Lending Facility last week to the
most in more than a year to support smaller firms, while in April it
cut the RRR by 1 percentage point, citing a similar goal.
economic slowdown and help lenders meet repayment obligations. It
boosted injections via the Medium-term Lending Facility last week to the
most in more than a year to support smaller firms, while in April it
cut the RRR by 1 percentage point, citing a similar goal.
“The liquidity strains are already having an impact on the economy,”
said Nathan Chow, senior economist at DBS Bank Hong Kong Ltd. “To
stabilize growth, the PBOC will show greater policy flexibility.”
said Nathan Chow, senior economist at DBS Bank Hong Kong Ltd. “To
stabilize growth, the PBOC will show greater policy flexibility.”
Source: Bloomberg
