After a moderate slowdown in 2018, China’s annual economic growth is likely to fall to 6.1 per cent in 2019, the sharpest drop in seven years. The macro picture for the year ahead remains precarious. The raging trade war and cautious policy easing are likely to compound the slowdown, taking annual growth to 5.8 per cent in 2020.
This forecast is made with the following three key considerations: the economy’s natural growth, the trade war prospects and the degree of policy easing by Beijing.
China’s natural growth is likely to be slowed further by both structural trends and cyclical components. Structurally speaking, an ageing population and the transition to a less capital-intensive growth model are exerting a downward pull on growth.
In addition, our economic cycle indicator shows a persistent pattern of cycles spanning about 3½ years. If this pattern holds, the current cycle that started in mid-2016 could approach an end in late 2019, giving way to a new cycle in 2020.
On top of the slowdown in natural growth, the economy will probably continue to endure shocks. The trade war has been a major factor behind weakened exports and manufacturing over the past year and can be expected to extend its macro impact into the year ahead.