Eyes turn to China as world stumbles into 2019

LONDON — Ten years after China helped stave off the threat of a global depression with a huge stimulus plan, investors are looking once again towards Beijing as the world economy heads for a slowdown, or worse, in 2019.

Booming China has accounted for about a third of the growth in the global economy in recent years.

So recent signs that it is losing momentum is unsettling when the US boom, turbo-charged by President Donald Trump’s tax cuts of 2017, seems to have peaked and Europe’s heavyweights are stalling.

China’s slowdown is already being felt around the world, from Apple’s profit warning due to weaker sales of its iPhones to car maker Jaguar Land Rover laying off workers, after a 22% fall in sales in the country in 2018.

Policy sources told Reuters in Beijing on Friday that the government is planning a lower economic growth target of 6-6.5% for 2019 after an expected 6.6% in 2018, which would be the slowest expansion since 1990.

In the first few days of 2019, China raised infrastructure spending with a $34-billion railway investment and its central bank loosened the screws on banks to encourage them lend more, its fifth such move in a year.

“China, that’s what worries me most,” Joachim Fels, managing director and global economic advisor at bond giant Pacific Investment Management Co.

Besides cutting China’s appetite for imports, a deeper slowdown could weaken its yuan and fan the flames of the trade war between Beijing and Washington.

However, Mr. Fels said his recession models for 2019 were flashing only orange warnings — not red — in part because the US Federal Reserve was likely to pause its run of interest rate hikes after one or two more increases.

China is expected to do more to act to help its economy too, although officials in Beijing say they do not plan a stimulus of the magnitude of the nearly $600 billion package unleashed in 2008, shortly after the collapse of Lehman Brothers.

“I find it hard to look at it historically and bet against the Chinese authorities managing to stabilize their economy,” Jim McCormick, global head of desk strategy for RBS division NatWest Markets, said. “When China wants to stabilise its economy, they tend to be successful.”

In November, the Organization for Economic Co-operation and Development (OECD) trimmed its forecasts for Chinese growth to 6.3% in 2019 followed by 6.0% in 2020. Since then, the impact of US-China trade tensions have become more apparent, OECD senior economist Margit Molnar said, suggesting the forecasts could be lowered again.

Higher borrowing by local governments in China suggested a pick-up in infrastructure spending was coming, she said, potentially helping to offset signs of fragile confidence among Chinese consumers. “The major issue is to guarantee a gradual slowing,” Ms. Molnar said.

For now, concerns of investors in late 2018 about the global economy have eased, fueling tentative recovery in battered stock markets.

A round of talks between US and Chinese trade officials in Beijing did not end in acrimony.

And in Europe, a slowdown is probably in part due to one-off factors such as new pollution rules for car makers and the impact of the gilets jaunes protests in France which has been felt in the supply chains that stretch across the border into Germany.

Steven Bell, chief economist with BMO Global Asset Management, said surveys of purchasing managers in the private sector around the world suggested a broad pick-up in industrial production was not far off. —