Summary for the 7th of February 2019


After a strong economic growth in 2017, China’s growth has subsided considerably in 2018. On the first half of 2018 the growth was subsided due to the less public investment and weaker consumer spending. The latter was unwanted, but the former was in conjunction with what the Chinese’s government wanted ( less debt in the stated owned enterprises and less local government debt). The economic growth in the second half of 2018 was subsided due to a decline in the housing market and a still weak consumer spending. The decline in the housing market was in conjunction with the government’s wishes (to prevent housing speculation). The positive side was that the public investment was rising in the second half of 2018, because Beijing was focusing less on reducing debt and more on boosting the economic growth.

The export growth in China was strong through 2018. This was due to the trade conflict with the US which had led to US companies expedited their imports from China earlier than usual to avoid a higher tariff that were planned to be implemented. This growth in export led the GDP in China to grow stronger than it would have been.

Yesterday’s Trade Balance from the US, released by the Bureau of Economic Analysis, showed a more narrowed trade deficit with China in November, mostly due to less imports from China. China trade numbers showed a similar result, with less demand from the US. GDP growth in China is thus expected to be slower.

A business survey has showed that many US companies operating in southern China are considering moving their manufacturing to other countries. Partly due to the political tension between the US and China. Rising labor costs, price of land and stricter environment regulations have also made many companies planning to move to other countries.

Chinese government has been implementing measures to counteract the downturn. Lower taxation for households and companies. The effects haven’t yet materialized. Also a higher public investment is one of the measures, and is mostly the factor that will be driving the economic growth in China. All of the above measures are fiscal policy. The Chinese central bank hasn’t changed the monetary policy. A cut in the interest rate would lead to housing speculation.

All of the above will most likely lead to continuing decline in China’s growth, but the downside risks are limited by the government’s expansionary fiscal policy.

Indices on 7th of February: Flat movement in the US stock markets yesterday.
Dow: -0.1% (6th of February )
S&P 500: -0.2% (6th of February)
Nasdaq: -0.3% (6th of February)
Nikkei: -0.6% (7th  of February)
STOXX Europe 600 Index: -1.49% (7th  of February)

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