China’s housing market to weaken, likely to drag overall economic growth

There are evident signs of the deceleration in Chinese housing market, noted Danske Bank in a research report. Home sales growth in October remained in the negative territory, while the PMI construction for the month of October was at the lowest level since March 2016.

The fall in activity is due to a long range of tightening measures starting mid-2016 triggering a sharp drop in credit growth. According to Danske Bank, housing in China is expected to continue to decelerate in the next 12 months as credit tightening continues and there is no sign of an easing of the policy. Weaker housing is the main reason for the expected moderate slowdown in the overall Chinese economy.

Low inventories of houses can act as a buffer and might guarantee that this does not turn into a ‘hard landing’ in construction as was seen in 2015 when housing inventories were elevated. The slowdown in construction is likely to be a drag on global metal prices and small declines are expected. China is likely to move from an inflationary global force in the past two years to a deflationary force again.

Nordic export firms exposed to China’s construction sector might record weaker growth rates next year after recording strong rates in 2016 and 2017. However, the deceleration of housing is desirable to guarantee a soft landing now rather than a hard landing later, added Danske Bank.

At 14:00 GMT the FxWirePro's Hourly Strength Index of Chinese Yuan was neutral at 30.5735, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 41.8652. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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