China: Growth to stabilise in 2020 – ABN AMRO

According to Arjen van Dijkhuizen, senior economist at ABN AMRO, last year, the slowdown of the Chinese economy deepened due to the impact of the escalated trade/tech conflict with the US and previous financial deleveraging, combined with a specific drag coming from the car sector.

Key Quotes

“We expect the ‘Phase One’ deal between the US and China reached last month (still to be signed formally mid-January) to be supportive, as it puts the tariff tit-for-that on hold, at least for now.”

“The direct effect of the modest tariff reductions agreed will be small, but the truce will help to reduce (though not eliminate) uncertainty, limit downside risks and restore confidence. Combined with the filtering through of Beijing’s piecemeal fiscal and monetary easing, we expect the car sector and overall industry to bottom out this year, contributing to a stabilisation in China’s GDP growth.”

“We expect the impact of the swine flu on CPI inflation to fade in 2020 and stimulus to remain ‘piecemeal’  rather than ‘big bazooka’, as the authorities still have to cope with longer-term constraints such as the need to keep overall leverage in check and prevent overheating of real estate markets. While our base scenario foresees stabilisation in the Year of the Rat, risks remain (particularly US-China tensions that make China’s transition even more challenging, developments in Hong Kong and Taiwan and risks related to China’s debt bubble and the rising number of defaults). For more background see our China 2020 Outlook, Growth to stabilise in the Year of the Rat, published yesterday.”