China’s real economic growth likely to decelerate, GDP to grow 6.6 pct year-on-year in 2018

Chinese economic outlook continues to be quite encouraging; while the nation’s real economic growth is expected to slow down to more sustainable levels, it is likely to stay strong by emerging market standards, noted Scotiabank in a research report.

Meanwhile, the economy’s structural transition might proceed from investment – and industrial- sector-focused activity to being driven by the consumer and the services sector. Accordingly, growth in fixed asset investment continues to decelerate, maintaining the trend of recent years.

In the meantime, a growing middle class and rising incomes might support household spending growth. Moreover, strong labor market conditions and contained inflation are supporting disposable incomes.

“We expect Chinese output to grow by 6.6 percent y/y this year, followed by a 6.3 percent gain in 2019”, said Scotiabank.

A further rise in the trade dispute between the U.S. and China is one of the main downside risks to the Chinese economic growth outlook. The U.S. is China’s main export destination, purchasing 21 percent of Chinese goods shipments abroad. Trade might stay a significant contributor to the economic growth given that the nation’s exports of goods and services are equivalent to 20 percent of GDP. However, the external sector’s significance to the economy has waned noticeably in recent years.

Trade tensions between the U.S. and China have deepened once again after the U.S. administration’s announcement that it would move ahead with imposing tariffs on around USD 250 billion worth of imports from China. If this gets implemented, these tariffs would possibly lead to retaliation by China followed by another response from the U.S.

“While tariffs on imports and exports will harm the Chinese economy, the country’s policymakers likely have more ability to manage the economic impacts of these tariffs than do US policymakers”, stated Scotiabank.

At 16:00 GMT the FxWirePro's Hourly Strength Index of Chinese Yuan was highly bearish at -139.494, while the FxWirePro's Hourly Strength Index of US Dollar was highly bullish at 135.409. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex