Chinese Growth Ebbs

Market Trends - 19/01/2016

As was widely expected by market participants, Chinese growth slipped further in the fourth quarter amid mounting concerns about the state of the economy.  As it undergoes the transition from a manufacturing and investment dependent economy to services and consumption, China expansion slowed in the final quarter from 6.90% to 6.80%. Gross Domestic Product for the whole year of 2015 was reported to have declined from 7.30% to 6.90%. The figure marked the weakest GDP growth since 1990 as policymakers attempt to wean the economy from export dependency towards more of a mixed dynamic that places increased emphasis on consumption.  In 2015 alone, the services sector continued to improve, growing by 8.30% in 2015 compared to 2014’s 7.80%.  During the same period, manufacturing out growth fell to 6.00% from 7.30%. The collapse in construction and shrinking exports is expected to persist as greater emphasis is placed on significantly rebalancing the country’s economy.

The turbulence that became synonymous with China in 2015 after initiating a shocking devaluation wiped away a massive $5 trillion from global stocks. The concerns that drove volatility in the financial markets in Asia have not been sufficiently addressed as evidenced by the most recent price action and rising risk aversion.  However, calls for additional fiscal stimulus remain largely unanswered and policymakers have warned against expectations of the Government riding in to the rescue should conditions deteriorate further.  Nevertheless, now that growth has slowed even further, it does raise the possibility of additional monetary accommodation.  Based on the recent basket of unfavorable outcomes such as decelerating expansion and slowing industrial production, analysts are increasingly concerned about the worst case hard-landing scenario. Speculation of additional monetary easing by the PBOC in order to keep growth targets satisfy has led to added anticipation of another imminent rate cut to 6.50% in an effort to show that policymakers are serious about tackling problems.

popup_close
usdcnhmarkettrends01192016

This website uses cookies to ensure best possible user experience. Read more

Accept