Chinese economy likely to decelerate further in short term, to recover gradually in 2019

The U.S.-China trade war and financial tightening in the past years have negatively impacted the Chinese growth in 2018. Following a decent beginning in 2018, the Chinese economy decelerated over the summer and into the autumn. Stock markets are down over 20 percent since Trumped kicked off the trade war in May and economic indicators throughout the board have indicated towards subdued demand.

Export firms have been impacted and the increased uncertainty has put limitations on private investments as well. Consumers have also held back on huge ticket purchases such as cars. The trade war with the U.S. impacted China when a deceleration was already underway because of the campaign to fight financial risks through deleveraging and a crackdown on shadow banking, noted Danske Bank in a research report.

The Chinese economic growth is expected to suffer further in the short term. Exports are expected to hit a vacuum in the first quarter as some exporters have pushed forward shipments to the fourth quarter because of the possibility that the announced increase in U.S. tariffs from 10 percent to 25 percent on goods worth USD 200 billion will go ahead and be implemented on 1 January, stated Danske Bank.

Nevertheless, China is unlikely to have a hard landing. The stimulus already given will increasingly kick in during 2019 and new stimulus is expected to further support demand.

The Chinese property sector is expected to underpin growth next year. Lower yields usually feed through to higher home sales and given that inventories of empty houses are usually low, the construction sector should see decent activity in the year ahead.

“We expect growth to slow further in the short term but look for a gradual recovery during 2019 on the back of more stimulus and a trade deal”, added Danske Bank.

At 14:00 GMT the FxWirePro's Hourly Strength Index of Chinese Yuan was highly bearish at -126.252, while the FxWirePro's Hourly Strength Index of US Dollar was slightly bullish at 51.9025. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex