Natixis tips China growth a 5.5-6.0% in 2020

December 16, 2019

HONG KONG - After experiencing rapid slowdown in 2019, China's, economy is expected to moderate its deceleration in 2020, according to Natixis, which says the general slowdown pattern is in line with structural trends such as aging, high leverage, and, more recently, geopolitical tensions. However, the economic slowdown will become more moderate, Natixis says, due to both the base effect (2019 has been a difficult year) and continuation of demand policies (fiscal and monetary).

"We expect China's economic growth rate to fall into the range between 5.5% to 6% in 2020" Natixis says.

"The most concerning aspect for the Chinese economy will still be domestic demand. The investment outlook for China's manufacturing sector is poor because of uncertainties related to the difficult China-US relations.

"Also, the Government's restrictions on housing purchases are set to continue in 2019 according to the tone set in the latest Central Economic Work Conference.

"Given the importance of the real estate sector and manufacturing for fixed asset investment, it is hard to see how the investment outlook can improve in 2020.

"Domestic consumption is also likely to remain sluggish because of the lower household income growth rate and rising household debt."

However, Natixis says, from a cyclical perspective, the low base in 2019 will lend some support to both investment and consumption, especially in the second half of 2020. It adds that  recent PMI data seems to suggest some recovery of business sentiment, at least temporarily, that could help some investment decisions.

"Regarding monetary policies, the PBoC will still be constrained by rising CPI at the beginning of the year, but pressure is likely to be relieved in the second part given rapid accumulation of pork supply," Naetixis says.

"We therefore expect the PBoC to become more accommodating in the second part of the year.

"Devaluation of the RMB is likely if US-China relations deteriorate again after their recent agreement to sign the interim deal."

Natixis says the Chinese Government will also push for more expansionary fiscal policies to support the economy.

However, several bottlenecks will be in the way.

"First, due to the tax cut and slower land revenue growth, the fiscal deficit is likely to further widen and increase Government debt.

"Second, notwithstanding the increase in the upper limits for bond financing, local governments are still unwilling to embark on more infrastructure projects.  This might be related to the very negative sentiment or, simply, the increasingly low return of such projects. (ATI).