Dong Jinyue and Xia Le：Growth Slowdown Deepened as Trade War Risk Intensified Again

This article first appeared in BBVA Research on June 14, 2019. Dong Jinyue, China Economist,BBVA Xia Le, Senior Research Fellow of IMI, Chief Economist for Asia, BBVA A batch of May economic indicators are announced today, together with previously released trade and credit data, suggesting that the risk of growth deceleration looms large as US-China trade war remain unsettled. We anticipate more monetary and fiscal easing measures to be deployed in the rest of the year in a bid to sustain growth momentum and offset intensifying headwinds from deteriorating trade tensions. In our base scenario, there is still a two-thirds possibility that China and the US could reach a deal to end the confrontations. We therefore maintain our full-year growth projection at 6% for 2019, in line with the authorities’ range target of 6-6.5%. May economic indicators suggest that growth slowdown is broad-based: industrial production decelerated from 5.4% y/y of April to 5% y/y; fixed asset investment also decreased to 5.6% ytd y/y from 6.1% ytd y/y in April, indicating the investors’ sentiments still weak. The only silver lining is retail sales which improved to 8.6% y/y from 7.2%. (Table 1; Figure 3-8) May credit data is broadly stable with the previous month readings. M2 growth maintains at 8.5% y/y as of the previous month. Both total social financing and new yuan loans marginally increased from the last month readings. Altogether, our BBVA MICA model yields a GDP prediction based on monthly data at 6.3% for Q2 2019, in line with the growth slowdown. (Figure 2)

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