Chinese economic slowdown to dampen global economic recovery slightly in quarters ahead, says Danske Bank

Currently, the global economy is in sweet spot in several ways. The rebound is the strongest since 2013 after the end of the euro debt crisis. Also, it is the first time since 2009 that the three major regions of the world – Europe, the U.S. and China – have shown a synchronised recovery, said Danske Bank in a research report. But this year, the Chinese growth driver is expected to lose momentum and pull less in global economy.

“With China driving around one third of global growth, we expect a Chinese slowdown to dampen the global recovery somewhat in coming quarters”, added Danske Bank.

The Chinese economy is likely to slow this year because the two engines that brought the nation out of the doldrums in early 2016 are likely to lose some steam. The two main drivers are infrastructure and housing. Since autumn, China has taken many steps to take the heat out of the housing market by pushing money market rates and yields higher and turning to the usual regulatory tightening measures of raising the requirement for a down payment on purchasing a house, stated Danske Bank.

There are evident signs of subdued home sales and it usually feeds through t o subdued construction with a three to six month lag. Infrastructure investment’s leading indicators are also indicating towards lower and a huge stimulus in early 2016. While China’s economy is likely to weaken, it is unlikely to slow down sharply.

“Exports should serve as a buffer based on decent growth in the US and Europe and a weaker CNY. The main risk is of course a trade war with the US later in the year which could give a hit to exports. 20% of Chinese exports go to the US market”, noted Danske Bank.