China expected to post the slowest growth in 28 years in 2018, with more economic stimulus

BEIJING (Reuters) – China is expected to announce Monday that economic growth has slowed to its slowest pace in 28 years in 2018, due to weaker domestic demand and US tariffs, increasing pressure on Beijing to put in place new support measures to avoid a more pronounced slowdown.

Growing signs of weakness in China – which has generated nearly a third of global growth over the past decade – are fueling worries about risks to the global economy and weighing on corporate profits ranging from Apple to major automakers .

Chinese policymakers have pledged to further support the economy this year to reduce the risk of mbadive job losses, but they ruled out a "surge" of stimulus measures similar to those that Beijing had unleashed in the US. past, which quickly accelerated growth rates but left a mountain of debt.

Analysts polled by Reuters expect the world's second-largest economy to grow 6.4 percent between October and December over the previous year, down from 6.5 percent a year earlier and at the equivalent levels of early 2009 during the global financial crisis.

This could bring gross domestic product (GDP) growth in 2018 to 6.6%, its lowest rate since 1990 and its revised level compared to 6.8% in 2017.

While economic stimulus measures are expected to take some time, most badysts believe the situation in China is expected to worsen before improving and that the slowdown to 6.3% is expected to continue this year. Some badysts believe that real growth levels are already much lower than official data suggests.

Even though China and the United States are hearing on a trade deal in the ongoing negotiations, which is a difficult task, badysts said it would not be a panacea for the Chinese economy that stammers, unless Beijing can galvanize the weakness of investment and consumer demand.

Chen Xingdong, BNP Paribas' chief economist for China, said investors should not expect the latest stimulus package to produce results similar to those of the 2008-09 global crisis, when Beijing's huge spending program quickly spurred growth.

"What China can really do this year is to prevent deflation, a recession and a hard landing of the economy," Chen said.

On a quarterly basis, growth is expected to be 1.5% in October-December, compared to 1.6% in the previous period.

China will release GDP data for the fourth quarter and 2018 on Monday (0200 GMT), as well as December's industrial production, retail sales and capital investment.

As China's quarterly GDP tends to be unusually stable, most investors prefer to focus on recent trends.

Surprising contractions in December trade data and factory activity gauges in recent weeks suggest that the economy has cooled more rapidly than expected at the end of 2018, leaving it on a more fragile footing at the beginning. of the new year.

Sources told Reuters that Beijing plans to reach its growth target of 6-6.5 percent this year, compared to about 6.5 percent in 2018.

The lukewarm expansion of industrial production and declining consumer spending reduce corporate profit margins, discourage new investment and increase the risk of more job losses.

Some factories in Guangdong – China's export hub – have closed earlier than usual in anticipation of a Lunar New Year holiday, with tariff war with the United States limiting orders. Others suspend production lines and reduce workers' hours of work.

If the trade war continues, some migrant workers may no longer have a job.

Trade negotiators face a deadline set in early March and Washington has threatened to raise tariffs sharply if there is no sign of significant progress.

STEPS OF STIMULUS WITH EYES

Until now, Chinese decision makers have accelerated construction projects and reduced taxes and some import duties to stimulate demand.

In order to release more funds for loans, especially to the most vulnerable small businesses, the central bank has reduced the amount of reserves that banks must hold as reserves (RRR) five times in the last year and has allowed to reduce the costs of borrowing.

Further reductions in the RRR are expected over the next quarters, but most badysts still do not see any reduction in benchmark interest rates, as policymakers wait to see if previous measures begin to stabilize conditions. More vigorous easing could put pressure on the yuan and exacerbate high levels of debt, as money is invested in less efficient or speculative investments. The government could unveil more fiscal stimulus at the parliament's annual meeting in March, including higher tax cuts and more infrastructure spending, badysts said.

Some Chinese observers estimate that the government could cut taxes by 2 trillion yuan ($ 295.13 billion) this year, and allow local governments to issue an additional $ 2 trillion in bonds. widely used to finance key projects.

Nevertheless, some badysts do not expect the economy to reach a lows before the summer.