China’s economic growth steady amid tariff fight with US

A container delivery truck drives past stacked piles of shipping containers at the Port of Long Beach in Long Beach, California on July 6, 2018, including one from China Shipping, a conglomerate under the direct administration of China's State Council. (File/AFP)
Updated 17 April 2019

China’s economic growth steady amid tariff fight with US

  • Consumer spending, factory activity and investment in China all accelerated in March from the month before
  • Forecasters expect Chinese growth to bottom out and start to recover later this year

SHANGHAI: China’s economic growth held steady in the latest quarter despite a tariff war with Washington, in a reassuring sign that Beijing’s efforts to reverse a slowdown might be gaining traction.
The world’s second-largest economy expanded by 6.4% over a year earlier in the three months ending in March, the government reported Wednesday. That matched the previous quarter for the weakest growth since 2009.
“This confirms that China’s economic growth is bottoming out and this momentum is likely to continue,” said Tai Hui of JP Morgan Asset Management in a report.
Communist leaders stepped up government spending last year and told banks to lend more after economic activity weakened, raising the risk of politically dangerous job losses.
Beijing’s decision to ease credit controls aimed at reining in rising debt “is starting to yield results,” said Hui.
Consumer spending, factory activity and investment all accelerated in March from the month before, the National Bureau of Statistics reported.
The economy showed “growing positive factors,” a bureau statement said.
Forecasters expect Chinese growth to bottom out and start to recover later this year. They expected a recovery last year but pushed back that time line after President Donald Trump hiked tariffs on Chinese imports over complaints about Beijing’s technology ambitions.
The fight between the two biggest global economies has disrupted trade in goods from soybeans medical equipment, battering exporters on both sides and rattling financial markets.
The two governments say settlement talks are making progress, but penalties on billions of dollars of each other’s goods are still in place.
China’s top economic official, Premier Li Keqiang, announced an annual official growth target of 6% to 6.5% in March, down from last year’s 6.6% rate.
Li warned of “rising difficulties” in the global economy and said the ruling Communist Party plans to step up deficit spending this year to shore up growth.
Beijing’s stimulus measures have temporarily set back official plans to reduce reliance on debt and investment to support growth.
Also in March, exports rebounded from a contraction the previous month, rising 14.2% over a year earlier. Still, exports are up only 1.4% so far this year, while imports shrank 4.8% in a sign of weak Chinese domestic demand.
Auto sales fell 6.9% in March from a year ago, declining for a ninth month. But that was an improvement over the 17.5% contraction in January and February.
Economists warn that even if Washington and Beijing announce a trade settlement in the next few weeks or months, it is unlikely to resolve all the irritants that have bedeviled relations for decades.
The two governments agreed Dec. 1 to postpone further penalties while they negotiate, but punitive charges already imposed on billions of dollars of goods stayed in place.
Even if they make peace, the experience of other countries suggests it can take four to five years for punitive duties to “dissipate fully,” said Jamie Thompson of Capital Economics in a report last week.
Chinese leaders warned previously any economic recovery will be “L-shaped,” meaning once the downturn bottomed out, growth would stay low.
Credit growth accelerated in March, suggesting companies are stepping up investment and production.
Total profit for China’s national-level state-owned banks, oil producers, phone carriers and other companies rose 13.1% over a year ago in the first quarter, the government reported Tuesday. Revenue rose 6.3% and investment rose 9.7%.


IMF downgrades outlook for world economy, citing trade wars

Updated 15 October 2019

IMF downgrades outlook for world economy, citing trade wars

  • Growth this year will be ‘weakest since the 2008 financial crisis,’ according to 2020 forecast

WASHINGTON: The International Monetary Fund is further downgrading its outlook for the world economy, predicting that growth this year will be the weakest since the 2008 financial crisis primarily because of widening global conflicts.

The IMF’s latest World Economic Outlook foresees a slight rebound in 2020 but warns of threats ranging from heightened political tensions in the Middle East to the threat that the US and China will fail to prevent their trade war from escalating.

The updated forecast released on Tuesday was prepared for the autumn meetings this week of the 189-nation IMF and its sister lending organization, the World Bank. Those meetings and a gathering on Friday of finance ministers and central bankers of the world’s 20 biggest economies are expected to be dominated by efforts to de-escalate trade wars.

The new forecast predicts global growth of 3 percent this year, down a 0.2 percentage point from its previous forecast in July and sharply below the 3.6 percent growth of 2018. For the US this year, the IMF projects a modest 2.4 percent gain, down from 2.9 percent in 2018.

Next year, the fund foresees a rebound for the world economy to 3.4 percent growth but a further slowdown in the US to 2.1 percent, far below the 3 percent growth the Trump administration projects.

IMF economists cautioned that that even its projected modest gains might not be realized.

“With a synchronized slowdown and uncertain recovery, there is no room for policy mistakes, and an urgent need for policymakers to cooperatively de-escalate trade and geopolitical tensions,” Gita Gopinath, the IMF’s chief economist, said in the report.

Last week, the US and China reached a temporary cease-fire in their trade fight when President Trump agreed to suspend a tariff rise on $250 billion of Chinese products that was to take effect this week. But with no formal agreement reached and many issues to be resolved, further talks will be needed to achieve any breakthrough. The Trump administration’s threat to raise tariffs on an additional $160 billion in Chinese imports on Dec. 15 remains in effect.

The IMF’s forecast predicted that about half the increase in growth expected next year will result from recoveries in countries where economies slowed significantly this year, as in Mexico, India, Russia and Saudi Arabia.

This year’s slowdown, the IMF said, was caused largely by trade disputes, which resulted in higher tariffs being imposed on many goods. Growth in trade in the first half of this year slowed to 1 percent, the weakest annual pace since 2012.

Kristalina Georgieva, who will preside over her first IMF meetings after succeeding Christine Lagarde this month as the fund’s managing director, said last week that various trade disputes could produce a loss of about $700 billion in output by the end of next year or about 0.8 percent of world output.

IMF economists said that one worrying development is that the slowdown this year has occurred even as the Federal Reserve and other central banks have been cutting interest rates and deploying other means to bolster economies.

The IMF estimated that global growth would have been about one-half percentage point lower this year and in 2020 without the central banks’ efforts to ease borrowing rates. “With central banks having to spend limited ammunition to offset policy mistakes, they may have little left when the economy is in a tougher spot,” Gopinath said.

In addition to trade and geopolitical risks, the IMF envisions
threats arising from a potentially disruptive exit by Britain from the EU on Oct. 31. The IMF urged policymakers to intensify their efforts to avoid economically damaging mistakes.

“As policy priorities go, undoing the trade barriers put in place with durable agreements and reining in geopolitical tensions top the list,” Gopinath said. “Such actions can significantly boost confidence, rejuvenate investment, halt the slide in trade and manufacturing and raise world growth.”

The IMF projected that growth in the 19-nation euro area will
slow to 1.2 percent this year, after a 1.9 percent gain in 2018. It expects the pace to recover only slightly to 1.4 percent next year.

Growth in Germany, Europe’s biggest economy, is expected to be a modest 0.5 percent this
year before rising to 1.2 percent next year.

China’s growth is projected to dip to 6.1 percent this year and 5.8 percent next year. These would be the slowest rates since 1990, when China was hit by sanctions after the brutal crackdown on pro-democracy demonstrators in Beijing’s Tiananmen Square.