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Fast Comment ChinaEconomy hurt by trade war

  1. Industrial sector particularly badly affected
  2. Slowdown set to continue
Industrial sector particularly badly affected
The trade war continues to take its toll on China’s economy as stimulus falls short of avoiding a further growth slowdown. All three activity indicators fell in September against expectations of small rebounds. Industrial production growth fell from 4.8 percent y-o-y in August to 4.4 percent in September, the lowest on record except for a few new-year distorted months in the early 2000s. Hence, not even front-loading of exports (and thus production) ahead of the US import tariffs hike taking effect on September 1 could prevent growth from slowing. Growth of fixed investments also slowed from 5.2 percent y-o-y to 4.3 percent in ordinary annual growth rates (our own calculation), as infrastructure investments did in fact jump, but not enough to counter the weakness in the industrial sector that holds down this sectors’ investments. Growth of retail sales also slowed.
Slowdown set to continue
We expect growth to continue to decelerate over the coming years amid persistent trade turmoil and because we expect that further stimulus will be of measured magnitude only. Government stimulus will probably be ramped up further. However, that will only mitigate and not completely counter the negative trade war impacts, in our view. In addition, the room for policy stimulus is more limited this time than in earlier instances of slowing growth in China. The main reason for this is that renewed credit-driven stimulus risks reversing the huge effort from the authorities to dampen credit growth and secure financial stability.



Bjarke Roed-Frederiksen

Senior Economist

Latin America and China

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