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As world economy stumbles into 2019, eyes turn to China

Updated January 12, 2019

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

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 carmaker Jaguar Land Rover laying off workers, after a 22 per cent 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 6-6.5pc for 2019 after an expected 6.6pc 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 Company, said as he surveyed the outlook for the world economy in 2019.

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

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

China is expected to do more to help its economy too, although officials in Beijing say they do not plan a stimulus of the magnitude of the nearly $600bn 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 stabilise 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.”

Published in Dawn, January 12th, 2019