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Fast Comment ChinaAn early (stimuli) Christmas gift

  1. China announces further economic stimuli
  2. Should alleviate financial markets’ concerns
  3. Growth target not yet announced
China announces further economic stimuli
China’s top politicians have concluded their Central Economic Work Conference and have announced that further stimuli are in the pipeline. Details are not yet available, but it has been announced that more significant tax and fee cuts than the ones already implemented will follow in 2019. In general, fiscal policy should according to the statement be more forceful and efficient. Also monetary policy will be loosened as the term ‘neutral’ has been removed from the description of the monetary policy stance.
Should alleviate financial markets’ concerns
Further stimuli are positive for Chinese economic growth, which has slowed due to past deleveraging efforts and trade war fears. More generally, Chinese stimuli are usually also positive for global commodity prices and stock markets. This of course requires that the stimuli proofs strong enough to dampen markets’ fear of a Chinese and thus global slowdown. We note that China’s authorities room for manoeuvre is more limited than in earlier economic downturns, and that one should not expect a repeat of the very massive stimuli packages that China has come up with in the past. Thus, the stimuli measures in 2019 will mitigate but not avoid the growth slowdown (please see our Macro Comment titled ‘Stimuli not enough to avoid further slowdown’ from 7 November).
Growth target not yet announced
The Central Economic Work Conference is held every year in December. At the meeting, economic goals and priorities for the coming year is set. The target for official GDP growth has likely also been decided upon at the meeting, but it is usually not published until March. The 6.5 percent for 2018 will be reached, but a less ambitious target for next year is in our view warranted as it will be difficult and unhealthy to try push up growth that much.

Disclaimer

Bjarke Roed-Frederiksen

Senior Economist

Latin America and China

bjro03@handelsbanken.dk

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