Rate cuts expected soon as China's slowdown worsens

Daniel Fowler
September 19, 2019

The pace of growth in China's economy slowed further in August, indicating that current stimulus policies may not be enough to shield the economy from the worsening effects of the trade war with the U.S.

Fixed-asset investment, a key driver of domestic demand that includes infrastructure investment, increased 5.5% year-on-year in the first eight months of this year, according to data released (link in Chinese) by the National Bureau of Statistics (NBS).

"It should be noted that global economic growth has slowed down since the beginning of this year, trade protectionism is on the rise, the worldwide environment is becoming more unstable and uncertain, and there are also increasing downward pressures domestically", Fu said. Retail sales growth in August slowed to 7.5% as compared to July's 7.6%. Private business fell behind the state sector for the sixth straight month. The Fed is expected to cut rates this week.

Slower price increases may give the authorities breathing room as they refrain from stimulating the property sector but economists at Nomura expect some tightening measures to be eased around end-2019 as weakness in the economy becomes more pronounced. Analysts polled by Reuters had forecast a pick-up to 5.2 per cent. -China Business Council, "optimism about China is at a historic low", so more and more US companies are "are halting investment", the Wall Street Journal reported and said that only a "slight majority of companies expect their revenue in the country to rise next year".

The real estate sector also held up in August to remain one of the few bright spots, with property investment growing at its fastest pace in four months as sales accelerated to the highest in over a year.

New York prosecutors subpoena Trump's tax returns
The president has fought back by challenging the subpoena in federal court, effectively tying up the release of the documents. The accounting firm, Mazars USA, has not handed over the returns.

The protracted trade war escalated dramatically last month, with president Donald Trump announcing new tariffs on Chinese goods from September 1, and China letting its yuan currency sharply weaken days later.

'For China to maintain growth of 6.0 per cent or more is very hard against the current backdrop of a complicated global situation and a relatively high base, and this rate is at the forefront of the world's leading economies'. Stripping out vehicles, retail sales rose 9.3 per cent on-year.

China, the world's top aluminum producer, churned out 2.97 million tonnes of the metal last month, down from 2.984 million tonnes in July, the second-highest monthly total on record, and down 0.3% from a year earlier, the bureau said.

As its trade war with the United States dragged on too long, China saw its factory activity shrink for the fourth consecutive month.

The People's Bank of China cut the amount of cash banks must hold as reserves this month to the lowest level since 2007, though is still holding off on cutting borrowing costs more broadly.

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