China: Another soft landing – Nordea Markets

Amy Yuan Zhuang, analyst at Nordea Markets, suggests that for the Chinese economy, a number of disappointing data at the beginning of the year has fuelled concerns about a sharp slowdown.

Key Quotes

“We think the government's increased efforts to stimulate the economy from all fronts will manage another soft landing this year.”

“The Chinese economy remains heavily controlled by the stability-obsessed government, which cannot tolerate a disorderly downturn due to its aversion to social instability. The government has therefore reacted as it has done in previous downturns, namely stimulating the economy using all three pillars of tools: fiscal, monetary and housing market.”

“Chinese economic growth has not struggled this much since 2009, due to a combination of domestic and external factors. Thanks to committed government support from fiscal and monetary policies, as well as less restrictive housing policies, the economy will most likely avoid a sharp slowdown.”

“We do not expect USD/CNY to fluctuate wildly in the coming months. The market is waiting for clarification on the US-China trade talks and how the Chinese economy will respond to the latest stimuli before deciding a direction.”

“We expect lower GDP growth and moderate inflation for the coming two years. We do not factor in any interest rate changes in our forecasts. We expect the CNY to stay broadly unchanged versus the USD but weaken versus the EUR.”