China’s 2019 gross domestic product forecast cut to 6.2 per cent by World Bank under ‘Darkening Skies’
- Multilateral development lending institution is the latest to predict a deepening of the economic slowdown in the mainland
- American President Donald Trump has claimed that the weakening economy gives the US an advantage in trade talks with Xi Jinping’s administration
A report titled “Darkening Skies” has forecast China’s growth for 2019 will drop by a further 0.1 of a percentage point over concerns of “weaker exports”, with many other institutions joining the World Bank in predicting a deepening slowdown in the world’s second biggest economy.
The World Bank’s projection for Chinese growth this year is in line with estimates by both Chinese and foreign forecasters, which fall in a range of 6.0 per cent to 6.5 per cent, down from an estimated 6.6 per cent in 2018.
“[China’s] growth is projected to decelerate to 6.2 per cent in 2019, slightly below previous projections as a result of weaker exports,” the World Bank said in the January edition of “Global Economic Prospect”.
The latest blow comes at a time when doubts are rising over the trustworthiness of the Chinese official gross domestic product growth rate, which has been extremely steady within a narrow range of 6.5 per cent to 7.0 per cent over the last 15 quarters.
Xiang Songzuo, a professor at the Renmin University of China in Beijing, said in a speech last month that he had read two “internal reports” about the current state of the Chinese economy – one said China’s real growth was only 1.67 per cent and the other showed China was actually in economic recession.
The video of the speech went viral in China before it was censored, and subsequent attempts to contact professor Xiang have been unsuccessful.
There is no hard data to prove that China is in economic recession, with most institutions predicting a growth rate of 6 per cent or above – UBS predicted 6.1, while the Chinese Academy of Social Sciences said 6.3.
American President Donald Trump has claimed that the weakening of the Chinese economy has given the United States an advantage in the trade talks that extended into an unexpected third day on Wednesday, as it puts pressure on Beijing to make concessions to Washington.
Beijing has officially put a brave face on the economic slowdown, but the Chinese leadership has been edging towards a serious stimulus package, including more fiscal spending and monetary easing, to bolster growth.
But the World Bank warned that additional stimulus may have the undesirable effect of slowing the country’s “deleveraging” programme to reduce debt and risky lending.
The Chinese government switched policy priorities in the summer to focus on stabilising economic growth in response to the effects of the trade war with the US.
At the Central Economic Work Conference last month, the top leadership led by President Xi Jinping made clear that the economic policy priority for 2019 would be to build a resilient domestic market to counter external forces.
Pro-growth measures are already in the pipeline after the People’s Bank of China announced last week that it will cut the required reserve ratio – the amount of money that banks must hold in reserves at the central bank – by a full percentage point in January, freeing up 1.5 trillion yuan (US$210 billion) for new lending.
In addition, China’s Ministry of Finance has already allocated the quotas for local governments to sell new bonds months earlier than in previous years to ensure there is sufficient funding to maintain the infrastructure construction momentum started last year.
The first quarter is widely expected to be a tough time for Beijing’s policymakers since easing measures from last year may have not yet taken full effect, while the US tariffs could push the quarterly growth rate to a record low.
Uncertainties remain whether a bilateral trade deal to end the trade war can be reached by the March 1 deadline set when Xi and US counterpart Trump agreed a 90-day truce in Argentina in December.
US trade negotiators remained in Beijing on Wednesday to continue talks that started Monday, with US President Trump claiming in a tweet that the discussions were going “very well.”
The World Bank also lowered its global growth forecast by 0.1 percentage point to 2.9 per cent due to a series of downside risks, including heavy debt loads and moderation of trade and manufacturing activities.
Talks with China are going very well!
— Donald J. Trump (@realDonaldTrump) January 8, 2019
The multilateral development lending institution also used a large section of its report to express concern over ongoing trade tensions and the risks they pose for the world economy.
“If a trade war between the United States and China contributes to a global slowdown, the spillover effects on emerging market and developing economies could be profound,” warned Shantayanan Devarajan, the World Bank’s senior director for development economics.